What differentiates lender's yield from effective borrowing cost (EBC)?

The concept of Effective Borrowing Cost (EBC) is designed to give borrowers a clearer picture of the total cost of borrowing, which goes beyond just the interest rate on the loan. One of the key aspects that differentiates EBC from lender's yield is that EBC takes into account additional third-party upfront expenses associated with securing the loan, such as origination fees, points, and other closing costs. This comprehensive view allows borrowers to understand the true financial obligation they are taking on when they secure a loan.

In contrast, while lender's yield includes various elements such as the interest rate and certain fees related to the loan itself, it may not encompass the full range of third-party costs that EBC considers. This distinction is crucial for borrowers, as it ultimately affects the total amount of money paid over the life of the loan. Hence, recognizing that EBC includes these additional expenses is vital for making informed decisions regarding borrowing.