How Do You Calculate Mortgage Basis Points?
A basis point is a measured unit which represents 1/100 of one percent. In terms of mortgages, basis points are often used by lenders when speaking about the terms of a loan. They may suggest that a certain type of loan may “add 50 basis points” or “add 150 basis points.” When calculating basis points you must know certain variables such as the amount of money being borrowed as well as the interest rate being charged for the loan. Learn how to write basis points. Basis points represent 1 / 100 of one percent. Written in decimal form, it reads: .0001 Write out the equation to calculate basis points. Basis points can be added or subtracted from interest rates. For example, if an interest rate is 4 percent, and 50 basis points are being added, the equation would read: Current Interest Rate (+ / -) Basis Points = New Interest Rate .04 + .0050 = .0450 Converted to decimal form, this equals 4.5 percent. If the interest rate is 4 percent and the basis points are being subtracted the equation
