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April 11, 2015

Point (17) The APR; Marcy Practices Explaining the APR

Marcy’s husband came into the room and said, “It sounds like a broken record in here, what are you doing?” Marcy, having grown up with CD’s couldn’t understand the analogy. Marcy informed him that she was practicing explaining the APR. But, that the definition was long and complicated, so she had to keep saying it over and over until it was natural. Then, tomorrow she planned to do the same thing. You get in practice, and you get out of practice just as easily, so Marcy decided to always be at the top of her game.

That night while they were sleeping, Marcy started talking in her sleep, “It doesn’t include closing costs… it is compounded annually.” If her husband hadn’t already been asleep, he wouldn’t fallen asleep from such a boring rant. Her husband was sleeping during this episode, but his subconscious heard everything and he started talking in his sleep saying, “Why can’t she just stay home and take care of Chuckie? snore…. snore… Chuckie…. snore…”

So, Marcy got to her next signing. They went through the documents. Then, she said, “Do you want me to tell you why your APR is higher than your Rate?” The borrower said, “Actually, our Lender already told us.” Marcy realized that her borrowers knew more than she did about loans. But, she didn’t regret practicing. It was one less thing to screw up on some future loan. At this point Marcy didn’t care how often she had to know something, she just didn’t want to screw up and lose her self-respect. It took about seven more signings until she had a borrower who was very confused. Marcy rattled off her definition of the APR and the borrower had to ask her to repeat it slowly. After a few tries the borrower kind of understood the inverse relationship of the equation and how some of the fees and closing costs were deducted. Marcy had memorized exactly which fees were included or excluded from the formula for calculating the APR and people were very impressed with her knowledge. A few asked her if she was an Escrow Agent.

Marcy was also smart by including a disclaimer in her speech stating that her explanation of the APR was a general one and wasn’t necessarily applicable to the borrower’s particular transaction in all ways.

The next thing you know the borrowers were asking Marcy for legal advice. Once again, Marcy played her cards correctly and told them that she was not an Attorney, and that she could not answer legal questions for them. Then, she suggested that they contact an Attorney. Another smart move. It looks like Marcy went from being clueless to being a very savvy and satisfied Notary in only a few weeks of hard knocks and studying. That night in her sleep, she went “z-z-z-z-z-z.”


Point (17) The APR
The APR is one of the most frequently asked about loan terms that exists. Notaries and Mortgage Brokers almost always sound very poorly rehearsed when they explain this very basic concept. To avoid sounding unprofessional, try to memorize as much as you can about how the APR is calculated, and also try to rehearse a comprehensive definition of the APR so that you will appear knowledgeable to clients and to us when we test you!

Quick Facts

(1) The APR is documented on the Truth in Lending Disclosure.

(2) The APR is usually but not always higher than the Rate.

(3) Your definition for the APR should include the fact that it could include loan origination fees, closing costs, appraisal fees, inspection fees, points, escrow fees, notary fees, and other costs of the loan — those are some of the big ones.

(4) If you mention that the APR is often used to compare loans, you get points on the phone test.

(5) If you mention that the APR might be compounded, you get points.

(6) Several notaries have claimed that there is no government standard for computing the APR, it is up to each individual lender.

(7) You could also claim that the APR includes the interest rate, all fees and costs of the loan, and incorporates them all into a compounded Annual Percentage Rate.

(8) There are many ways to define the APR, the key is to mention all of the components in a clear and easy to understand way.


When we ask notaries about the APR, the answers we get are very inconclusive such as:

“It included the fees”
“It is the cost of the loan”
“It has the interest and fees”
“It is different from the Rate because it is annual”

How unprofessional. If you are a professional signer, you need a professional definition.

A Mortgage Company’s definition of the APR
The Annual Percentage Rate (APR) is an interest rate that is different from the note Rate. It is commonly used to compare loan programs from different lending companies. The Federal Truth in Lending law requires that mortgage companies disclose the APR when they advertise a rate.The APR does NOT change or affect your your monthly payments. Your monthly payments are a function of the interest rate as well as the length of the loan. We provide calculators to calculate your monthly payment as well as your APR.


Jeremy’s official definition of the APR
The APR is the relationship between the payments and the amount borrowed, minus the fees expressed as a compounded annual rate. This rate is often used to compare the different loans borrowers have to choose from. The APR is almost always higher than the Rate. The Rate, on the other hand, is a monthly percentage relationship between the payments and the total amount borrowed, including fees.


Fees included in computing the APR:
Points (discount and origination points)
Pre-paid interest
Loan processing fees
Underwriting fees
Document preparation fees
PMI – Private Mortgage Insurance
Appraisal Fees
Credit Reporting Fees


Fees not normally included when computing the APR
Title or Abstract Fees
Escrow Fees
Notary Fees
Home Inspection Fees
Transfer Taxes
Recording Fees


Although my delightful sounding definition of the APR sounds very professional, there is no reason why you shouldn’t come up with your own, and practice it until you sound perfect. One objection that I have is that Notaries sound unrehearsed when talking about the APR even if they have signed 10,000 loans. If you are a professional, then sound professional!


You might also like:

30 Point Course Table of Contents

30 Point Course (18-24) Technical Points

How do you explain the APR to a non-borrowing spouse?




  1. Did a signing once where loan agent was present. She boasted of her 25 years of experience as a loan agent, wheeled up in her Mercedes etc, and admitted she didn’t know how to explain with APR was, right in front of her clients and asked me to tell them about APR. I guess you can put shoes on a pig, but it still ‘oinks’.

    Comment by Dan Serbin — April 25, 2015 @ 4:22 pm

  2. The APR, simply stated, is an expression that shows the effect of the pre-paid finance charges shown over the life of the loan. Always point out they are only paying them once, that is why the Note rate is different.

    Comment by John Axt — April 25, 2015 @ 6:42 pm

  3. I would rather not even go down that road. I tell borrower’s that I am the “Professional Witness” and my capacity is to print and bring the documents, oversee the correct signatures and/or initials, and notarizations only. I tell that that I have had no involvement in the process of creating their loan and any descrepancies need to be discussed between the borrower(s) and the lender.
    It is very similar to calls that I receive for my husband at his law office regarding a client’s balance. I refer to the attorneys for the answer for their client on those questions. Once I tell someone what their balance is, and I am incorrect, they remember what I said, and this undermines their relationship with their lawyer, especially if I am incorrect. ALL of our receipts show, “Payment Towards Balance”. Should each attorney wish to provide the balance remaining, it is their business to provide this, and not mine.
    FURTHER, it is frustrating enough to have to confirm monies due to a borrower, and for ME to remind them that they will need a Cashier’s Check and for ME to call the Vendor or the Lendor to confirm WHO that check needs to made out to—ALL to make sure that that signing starts and ends on time, and I don’t have a refusal.
    I am happy to be well versed on the purpose of the documents in a loan package, but I will NOT discuss them with borrowers at a signing!

    Comment by betty — April 25, 2015 @ 7:56 pm

  4. I would like to know how the rate is compounded though! A compound loan is where interest is added each increment (monthly in our case) and then becomes part of the principal that is used to calculate the next interest payment.

    Comment by John Axt — June 26, 2015 @ 12:28 am

  5. I have said it before, and will repeat. I am the professional WITNESS to your signatures at a closing. Yes, I already knew what the APR was, and could repeat this. You open the door for more and specific questions from the borrowerer, which is ALREADY open to you as the “expert” on their loan, simply because YOU are the person who shows up with the paperwork! I emphasize to borrowers that they must always contact their lender with any questions. I tell them that every loan is different and I was not a part of putting together THEIR loan, and that their lender is their partner in this loan. The only real help I give them is in contacting their lender or another rep at theat institution when they are leaving unreturned messages at the signing table. Many venders provide me with multiple phone numbers to call for assistance, but if nobody calls back, I call as if I am an inquiring about a new loan and then identify myself and the loan number to get questions answered, and I usually get a person there quickly on the phone to help.

    Comment by betty — July 24, 2015 @ 2:39 pm

  6. As a notary and a trainer for the mortgage industry, the APR, is comprised of by using the lenders costs. In some instances, the title charges are also included. I can provide the formula for calculating the APR, if anyone is interested

    Comment by Debbie — July 30, 2016 @ 10:08 pm

  7. Great article! If I must repeat, we ARE there to give brief, layman’s statements regarding the documents to help our borrowers understand. We are NOT just witnesses. Why do you think we get all these questions when we take signing agent certification exams??? Its so we don’t look like idiots when we are asked basic questions. I have particular companies that call me direct for jobs because of my track record with them. You can be informative without giving advice. I put myself in their shoes…and I never give vague answers. If someone has a glazed look in their eyes when you answer a question regarding a document, that’s generally a sign that don’t understand it. Take the time to feel out their responses and you will walk away knowing you did your best. I don’t ever want to leave the signing table thinking my borrower is clueless to what they just signed. It’s called due diligence

    Comment by Lisa Hebert — November 9, 2018 @ 9:32 am

  8. Thank You for Going Over the APR…it is a bit tricky to remember and Yes I do carry a Cheat sheet with some relevant info on Questions folks have on the different Acronyms, etc. and update it when needed.

    Comment by Tony DeArco — January 23, 2019 @ 5:35 am

  9. So far in nearly 1000 refi’s and purchases a signer has not asked me to explain the APR. When those who see it notice it is higher than the interest rate for the note, they mostly want to make sure the interest rate on the note remains as expected. I’m glad to learn why it is higher and it is useful to know that it is like a yard stick to compare offers from different lenders, however it does seem that the fees that are included are variable between lenders so it’s not a straight comparison. It seems also likely that it would suit lenders not to have too big a gap between the note’s rate and the APR as it would inspire distrust from a borrower. Just a guess.

    Comment by Jasmin — February 10, 2019 @ 6:12 am

  10. There seems to be some contradiction in the article above. Under “Quick Facts” – item number 3 states that the APR does include escrow fees:

    (3) Your definition for the APR should include the fact that it could include loan origination fees, closing costs, appraisal fees, inspection fees, points, escrow fees, notary fees, and other costs of the loan — those are some of the big ones.

    However, in the list for “Fees not normally included when computing the APR”, it states that the escrow fees are NOT included:

    Fees not normally included when computing the APR
    Title or Abstract Fees
    Escrow Fees
    Notary Fees
    Home Inspection Fees
    Transfer Taxes
    Recording Fees

    SO my question is: Are escrow fees included in the APR?

    Comment by John — January 1, 2021 @ 2:55 pm

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