Mortgage Basis Points Explained: What BPS Mean for Your Rate

In the Bank of Canada’s words, “a basis point is one hundredth of 1%”, so there are 100 basis points (bps) in one percentage point. Lenders, bond markets and the Bank of Canada use them because they make small rate differences precise. This page, part of the mortgage rates hub, shows how to convert them, where Canadian borrowers see them, and what a few basis points are worth on a mortgage.

Converting basis points and percentages

Divide basis points by 100 to get percentage points; multiply percentage points by 100 to get basis points.

Percentage points are not percent

A basis point measures a change in percentage points, not a percentage change. If a rate goes from 4.00% to 5.00%, it has risen by 100 basis points, one percentage point. Relative to where it started, that is a 25% increase (1 ÷ 4 × 100). “100 basis points” leaves no room for the second reading, which is why rate decisions and mortgage quotes use it.

Where Canadian borrowers see basis points

Bank of Canada rate decisions

The Bank of Canada announces its policy rate decisions on eight fixed dates a year. Its announcements usually give the size of a change in basis points (the June 5, 2024 release was headed “reduces policy rate by 25 basis points”), though some state only the new rate: on March 2, 2022 it “increased its target for the overnight rate to ½ %” (Bank of Canada). During the 2022 increases, its moves were these sizes (Bank of Canada series V39079, as of 2026-09-02):

Cuts are stated the same way: the decision of October 29, 2025 lowered the rate by 25 basis points, to 2.25%. How these decisions reach mortgages is covered on the Bank of Canada policy rate page.

Prime and variable rates

The FCAC notes that a rate of “prime plus a percent” is “often the case with a variable rate mortgage”; its own illustration, “prime plus 1%”, is the prime rate plus 100 basis points. Prime itself sits above the policy rate: on September 30, 2026, the banks’ prime rate was 4.45% and the policy rate 2.25%, a gap of 220 basis points.

Posted rates by term

The posted conventional mortgage rates the Bank of Canada publishes for the chartered banks (advertised rates, not the discounted rates borrowers are offered) differ by term in basis points too. On September 30, 2026, the posted 5-year rate was 6.09% and the posted 1-year rate 5.49%, a gap of 60 basis points. Fixed rates follow bond yields, and the gap between a fixed rate and the bond yield can be stated in basis points as well.

Mortgage default insurance premiums

CMHC’s premiums for a purchase with a 25-year amortization are a percentage of the loan, which converts to basis points the same way:

Each band starts just above the one before it. At 80% loan-to-value or less, a bank mortgage doesn’t need to be insured (Bank Act, section 418), so most buyers pay no premium; when such a loan is insured, CMHC’s schedule lists 0.60% up to 65%, 1.70% up to 75% and 2.40% up to 80%. The CMHC insurance page covers when insurance is needed.

What a basis point costs on a mortgage

A quick estimate: one basis point is 0.01% of the balance a year, so in the first year it adds about the balance divided by 10,000 in interest, and less as the balance is paid down. The exact figure comes from the payment formula. The FCAC’s illustrative table for a $300,000 mortgage over 25 years shows a payment of $1,710.82 a month at 4.80% and $1,744.81 at 5.00%, so those 20 basis points cost $33.99 a month, $2,881.99 in interest over 5 years and $10,199.49 over 25 years. As the FCAC puts it, “small differences in the interest rate can have a significant impact on your costs.”

On a variable-rate mortgage the effect depends on the payment type. With adjustable payments, the payment moves when prime moves; with fixed payments, the payment stays the same and more of it goes to interest, which can bring the mortgage to its trigger rate.

Basis points when you negotiate

The FCAC notes that “you may be able to negotiate a lower rate with your lender” and that “a discounted rate is lower than the lender’s posted rates.” Quotes from different lenders are easiest to compare in basis points: an offer of 4.34% against one of 4.44% is a 10 bps gap , which the example table above turns into dollars. How to get the best mortgage rate covers where offers come from, and how to negotiate your mortgage rate covers the conversation itself. If you would pay to lower the rate instead, buying down your mortgage rate shows how to check whether those basis points are worth the price.

Common phrases

Related pages

• How are mortgage rates determined?
• How bond yields affect mortgage rates
• Interest rate forecasts
• APR vs interest rate
• Fixed vs variable mortgage