25 vs 200 Basis Points: Range Extremes

Overview

Twenty-five versus 200 basis points shows the full spectrum from risk-free policy adjustment to material credit spread. While Fed moves by 25 bps affect the baseline cost of money, individual borrowers might experience 200+ bps spreads above that baseline depending on creditworthiness. This nearly 2% total differential creates vastly different borrowing experiences.

Real-World Impact

When the Fed cuts 25 bps, the best mortgage customers see prime drop from 7.0% to 6.75%. But subprime borrowers at +200 bps go from 9.0% to 8.75%. On a $300,000 30-year mortgage, prime borrowers save $50/month; subprime borrowers also save $50/month - but the rate gap persists. The 200 bps premium costs $72,000 more over 30 years than paying just 25 bps over prime.

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