Basis Points
Basis Points in Practice
On a $10,000,000 interest-only loan, every 25 basis points of rate equals $25,000 per year of interest ($10,000,000 x 0.0025). A lender quoting a spread of 275 over an index means 2.75 percentage points above that index. A one-point origination fee equals 100 basis points of the loan amount, or $100,000 on the same loan. Converting every quote into basis points and dollars is how professionals compare offers that are packaged differently.
Basis Points: What the Market Actually Requires
All institutional loan pricing is denominated in basis points. Floating-rate lenders, meaning banks, debt funds, and agency floating-rate programs, quote a spread over SOFR in bps. Fixed-rate lenders, chiefly CMBS shops and life insurance companies, quote spreads over Treasuries of matching term. Agency fixed-rate pricing moves through grids that step in basis points by LTV and DSCR tier. When a broker compares quotes across capital sources, the exercise reduces every structure to all-in basis points over the same benchmark so the borrower is comparing like with like.
Basis points also govern the fee side of the term sheet. Origination fees are quoted in points, where one point equals 100 bps of the loan amount. Bridge lenders commonly charge exit fees of 25 to 100 bps and extension fees of 25 to 50 bps per option exercised. Rate lock deposits with life companies and agency lenders are set in bps of the loan. Servicing strips, spread maintenance prepayment formulas, and even appraiser adjustments to cap rates all speak the same language.
The negotiation texture: spreads move for identifiable reasons, and knowing them is leverage. Lower LTV, recourse, deposit relationships at banks, shorter interest-only periods, and stronger sponsorship each buy measurable bps off a quote, while story assets, thin markets, and aggressive leverage add them back. Borrowers intending to hold long term can pay points upfront to buy the spread down. The discipline that separates professionals from amateurs is converting every trade-off into annualized basis points over the expected hold and comparing all lenders on that single axis instead of on three different marketing packages.
Why It Matters for Your Loan
Basis points are how every lender prices risk, and fluency in them is table stakes for comparing quotes. On a $10,000,000 loan, 25 bps is $25,000 a year and $250,000 over a ten-year term, real money hiding inside rounding language. Reading a term sheet entirely in bps, spread, origination fee, exit fee, and prepayment formula alike, lets you compare a bank against a debt fund against CMBS on one axis instead of three lenders' packaging.
Basis Points: FAQ
Put This Knowledge to Work
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