Definition
One one-hundredth of a percentage point, used to describe interest rate changes and fees without dealing with decimals. It's how mortgage professionals make 0.25% sound more important by calling it 25 basis points.
Example Usage
The Fed dropped rates by 50 basis points, which triggered a refinancing tsunami that crashed every mortgage lender's website simultaneously.
Origin
Financial terminology dating to the early 20th century bond markets
Fun Fact
Using basis points eliminates ambiguity—when rates increase from 5% to 6%, that's a 1 percentage point increase but a 20% relative increase, while 100 basis points is always 1.00%.
Source: Financial and mortgage industry terminology
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