Basis points are the standard unit of measurement in the mortgage and bond markets — and understanding them is the difference between negotiating your rate effectively and leaving money on the table. One basis point is 0.01%, which sounds trivially small until you apply it to a $500,000 mortgage over 25 years. Then the numbers get real.
What Is a Basis Point?
The Definition
| Unit | Value |
|---|---|
| 1 basis point (1 bps) | 0.01% |
| 10 basis points | 0.10% |
| 25 basis points | 0.25% |
| 50 basis points | 0.50% |
| 100 basis points | 1.00% |
| 200 basis points | 2.00% |
Quick Conversion
To convert basis points to a percentage: divide by 100
To convert a percentage to basis points: multiply by 100
| Basis Points | Percentage |
|---|---|
| 5 bps | 0.05% |
| 15 bps | 0.15% |
| 25 bps | 0.25% |
| 75 bps | 0.75% |
| 125 bps | 1.25% |
| 475 bps | 4.75% |
Why Basis Points Matter for Your Mortgage
The Cost of Basis Points by Mortgage Size
| Mortgage Amount | 1 bps/year | 10 bps/year | 25 bps/year | 50 bps/year | 100 bps/year |
|---|---|---|---|---|---|
| $200,000 | $20 | $200 | $500 | $1,000 | $2,000 |
| $300,000 | $30 | $300 | $750 | $1,500 | $3,000 |
| $400,000 | $40 | $400 | $1,000 | $2,000 | $4,000 |
| $500,000 | $50 | $500 | $1,250 | $2,500 | $5,000 |
| $600,000 | $60 | $600 | $1,500 | $3,000 | $6,000 |
| $750,000 | $75 | $750 | $1,875 | $3,750 | $7,500 |
| $1,000,000 | $100 | $1,000 | $2,500 | $5,000 | $10,000 |
Approximate annual interest cost difference. Actual savings depend on amortization schedule.
Over a 5-Year Term
| Mortgage Amount | 10 bps Savings | 25 bps Savings | 50 bps Savings |
|---|---|---|---|
| $300,000 | $1,500 | $3,750 | $7,500 |
| $500,000 | $2,500 | $6,250 | $12,500 |
| $750,000 | $3,750 | $9,375 | $18,750 |
These numbers make it clear: negotiating 25 basis points off your mortgage rate on a $500,000 mortgage saves you over $6,000 during a single 5-year term. That is worth a phone call.
Over the Full 25-Year Amortization
| Rate Difference | Extra Interest on $500,000 (25 years) |
|---|---|
| 10 bps (0.10%) | ~$9,500 |
| 25 bps (0.25%) | ~$23,500 |
| 50 bps (0.50%) | ~$46,000 |
| 100 bps (1.00%) | ~$89,000 |
A full percentage point (100 bps) difference on a $500,000 mortgage costs almost $90,000 over 25 years. This is why shopping for the best rate, even if the differences seem small, has an enormous long-term impact.
Basis Points in Bank of Canada Rate Decisions
The Bank of Canada adjusts its overnight (policy) rate 8 times per year. Each decision is described in basis points:
Common Move Sizes
| Move Size | Frequency | When Used |
|---|---|---|
| 0 bps (hold) | Most meetings | Economy is on track |
| 25 bps | Common | Standard adjustment up or down |
| 50 bps | Uncommon | Moderate urgency — economy needs bigger push |
| 75 bps | Rare | Near-emergency, used in 2022 |
| 100 bps | Very rare | Emergency — used once in July 2022 (largest single hike in decades) |
Impact on Variable-Rate Mortgages
When the Bank of Canada changes its rate, variable mortgage rates move by the same amount — usually within 1–2 business days.
| Bank of Canada Move | Variable Rate Change | Monthly Payment Change ($500K mortgage) |
|---|---|---|
| −25 bps | −0.25% | −$72 |
| −50 bps | −0.50% | −$143 |
| +25 bps | +0.25% | +$72 |
| +50 bps | +0.50% | +$143 |
| +100 bps | +1.00% | +$284 |
Payment impact based on adjustable-payment variable mortgage with 25-year amortization. Fixed-payment variables do not change the payment amount — only the interest/principal allocation.
Basis Points in Mortgage Rate Negotiations
Where Basis Points Come Into Play
| Situation | Typical Range of Negotiation |
|---|---|
| Posted rate vs discounted rate | 100–200 bps below posted |
| Broker-negotiated discount | 10–50 bps below bank’s initial offer |
| Rate match request | 5–25 bps (lender matches a competitor’s offer) |
| Loyalty/retention discount | 5–15 bps at renewal |
| Volume/preferred client rate | 10–25 bps for high-value clients |
How to Negotiate Using Basis Points
| Step | Action |
|---|---|
| 1 | Get quotes from 3+ lenders (bank, broker, monoline) |
| 2 | Identify the best rate you have been offered |
| 3 | Tell your preferred lender: “I have an offer of 4.34% — can you match or beat it?” |
| 4 | If they offer 4.44%, that is 10 bps higher — ask if they can close the gap |
| 5 | Even 5 bps matters: on $500K, that is $1,250 over 5 years |
Basis Points in Bond Yields and Fixed Mortgage Rates
Fixed mortgage rates are priced off the Government of Canada (GoC) 5-year bond yield, plus a spread.
The Rate Stack
| Component | Example Value | Basis Points |
|---|---|---|
| GoC 5-year bond yield | 3.20% | 320 bps |
| MBS/CMB spread | +0.15% | +15 bps |
| Lender operating spread | +0.50% | +50 bps |
| Lender profit margin | +0.50% | +50 bps |
| Fixed mortgage rate | 4.35% | 435 bps |
When bond yields move by 10 bps, fixed mortgage rates often follow by a similar amount — though not always immediately.
Historical Bond-Mortgage Spread
| Period | GoC 5-Year Yield | Avg Fixed Rate | Spread |
|---|---|---|---|
| 2019 | 1.50% | 2.89% | 139 bps |
| 2020 (COVID) | 0.35% | 1.99% | 164 bps |
| 2021 | 0.95% | 2.29% | 134 bps |
| 2022 | 3.20% | 5.14% | 194 bps |
| 2023 | 3.80% | 5.59% | 179 bps |
| 2024 | 3.10% | 4.89% | 179 bps |
| 2025 | 2.85% | 4.39% | 154 bps |
The spread typically ranges from 130–200 bps. When it compresses (below 150 bps), borrowers are getting relatively good deals. When it widens (above 180 bps), lenders are charging a larger premium.
For more on this relationship, see how bond yields affect mortgage rates.
Basis Points in CMHC Mortgage Insurance
CMHC insurance premiums are also expressed as basis points of the mortgage amount:
| LTV Ratio | Down Payment | Premium |
|---|---|---|
| 80.01–85% | 15–19.99% | 280 bps (2.80%) |
| 85.01–90% | 10–14.99% | 310 bps (3.10%) |
| 90.01–95% | 5–9.99% | 400 bps (4.00%) |
On a $475,000 mortgage with 5% down, the 400 bps premium equals $19,000.
Common Basis Point References in Canadian Mortgages
| Term You’ll See | What It Means |
|---|---|
| “Prime minus 50 bps” | Variable rate = prime rate − 0.50% |
| “Prime plus 25 bps” | HELOC rate = prime rate + 0.25% |
| “25 bps cut by the Bank of Canada” | Overnight rate reduced by 0.25% |
| “Spread of 150 bps over bonds” | Fixed mortgage rate is 1.50% above bond yield |
| “Rate improved by 15 bps” | You saved 0.15% on your rate through negotiation |
| “Posted rate is 200 bps above best available” | The posted rate is 2.00% higher than the discounted rate |