Basis Points (BPS) and Commercial Real Estate Finance
Basis points are used to measure many financial instruments, including the fees, spreads and rates in commercial real estate finance. Each basis point is worth 0.01 percent of a single percentage point. Therefore, if the fees for a loan are 100 basis points, they represent 1 percent of the commercial mortgage amount.
When the rate for a commercial real estate loan changes, the lender may say it's gone up or down a certain number of basis points. To quickly calculate the equivalent percentage of increase or decrease, move the decimal point two spaces to the left. For example, if the rate of a commercial mortgage loan has risen 25 basis points, it has risen 0.25 percentage points.
When arranging financing, the commercial mortgage broker may negotiate how many basis points are in the spread (essentially the lender’s profit) so as to provide for better pricing for the borrower. When discussing two different loan interest rates (because of different terms, amortizations, or underwriting), the lender may discuss the spread between the two in terms of basis points.