What does the effective borrowing cost (EBC) include?

The effective borrowing cost (EBC) is a comprehensive measure that reflects the true cost of borrowing money for real estate transactions. It includes not only the interest on the loan but also additional expenses that borrowers must consider when evaluating loan options.

Up-front expenses and closing costs are included in the EBC as they can significantly impact the overall cost of the loan. These can encompass various fees such as loan origination fees, appraisal fees, and other charges incurred at the time of closing. By factoring in these costs, the EBC provides a clearer picture of the total financial obligation for taking out a loan, which is essential for effective financial planning and comparison between different financing options.

Other elements such as missed payment penalties and annual insurance costs, while important in their own right, do not typically form part of the EBC calculation, which centers primarily on the costs directly associated with obtaining the loan itself.