What Are Basis Points? The Finance Unit Explained
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Key terms
- Points (Mortgage)Upfront fees paid to lenders to reduce the interest rate on a mortgage. One point equals 1% of the loan amount and typically reduces the rate by about 0.25%.
- Cost BasisThe original purchase price of an asset, used to calculate capital gains or losses for tax purposes. Adjusted for stock splits, dividends, and return of capital.
- Credit Card PointsRewards earned on credit card purchases that can be redeemed for travel, merchandise, gift cards, or statement credits. Value varies by card but typically 1 point = 1 cent.
- Finance ChargeThe total cost of credit, including interest and fees. Calculated based on average daily balance and APR. Avoided entirely by paying statement balance in full each month.
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