Notary Blog – Signing Tips, Marketing Tips, General Notary Advice – 123notary.com Control Panel

May 18, 2013

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

I was talking to a notary on the East Coast. I was going to ask him a loan signing question, but then he retorted back a question in my direction before I could ask my question.

How do you explain the APR to a non-borrowing spouse?, he asked.

I gave him my routine mathematical definition of the APR and he was impressed. When he asked the question, I was thinking that this is a great question. It sounded like a trick question, but it actually is a very reasonable question. It suddenly occurred to me that the non-borrowing spouse is the epitome of a lay-person, and doesn’t understand complicated terms such as “amortized” or “finance charges”. If you have an MBA in Finance, you might not be the best person to explain an APR to someone’s wife. So, part of the genius of this question is that it tells you to use layperson language without telling you directly.

The other great aspect of this question is that it gives the opportunity to tangent goers to go off on a tangent — and they take this opportunity. I ask this question to many people, and 20% of the people go off on a very long explanation of what documents the non-borrowing spouse has to sign. But, that has nothing to do with the question. They didn’t LISTEN. This is a good listening and tangent going question. You learn very quickly who listens, and who can talk as well.

People notoriously leave out 90% of the meat of the answer when describing this confusing and diabolical term.

“It includes the fees”

Trust me, it includes a lot more than the fees.

“It reflects the cost of the loan”

Trust me, it also includes your interest as well as whatever the cost is.

“It’s usually higher than the rate”

Boy, are we being vague.

“It includes interest and fees”

Better, but very uneducated sounding.

Most answers to this question are either missing the target, or miss the main point of the APR.

The APR is a RATIO that is based on the payments relative to the total amount financed after: some of the finance charges, perhaps points, perhaps loan origination fees, PMI, and perhaps other fees have been deducted — and is reflected on a compounded annual rate.

I am not a lender and don’t know the “Real” definition. But, how the APR is calculated can vary from state to state, and from lender to lender. So, there is no absolute definition, but only definitions that are approximate. Unfortunately, the definitions I am hearing from the notaries are overly simplistic and generally just plain wrong!

You might also like:

What traits do escrow officers look for in Notaries?

The Right to Cancel Done Wrong

The 30 point course guide to the APR

Common mistakes with the APR



  1. You don’t. You refer the call to higher authority as the multiple variables (juristriction, type of loan, lender policy, timeframe, etc.) involved will most likely lead to giving wrong information.

    Comment by Kenneth A Edelstein — May 19, 2013 @ 11:27 pm

  2. I like this definition: Annual percentage rate (APR). A loan’s annual percentage rate, or APR, is what credit costs you each year, expressed as a percentage of the loan amount.

    The APR, which is usually higher than the nominal, or named, rate you’re quoted for a loan, includes most of a loan’s up-front fees as well as the annual interest rate.

    You should use APR, which is a more accurate picture of the cost of borrowing than the interest rate alone, to compare various loans you’re considering.

    Comment by Jillian Hinrichs — June 5, 2013 @ 5:14 pm

  3. Oh did I mention that this was going to be the largest financial decision of the borrowers life? The government created the “Truth in Lending” because at the time there was no truth in lending. Well there more truth now but they haven’t got around to changing the title of the document have they? When a layperson eyes that APR the Loan Officers credibility sometimes goes right in the crapper. How many time have I watched the borrowers ears turn red (sure sign of immense stress) then look up at me helplessly and in need of counseling. What do you say??? Questions? Call the Loan Officer!

    Or you can say that the government created the APR to prompt you (borrower) to ask the Loan Officer (salesman) WHY it was different from the interest rate he had been quoting you for the entire loan process. Then the loan officer would explain that he did indeed add points and fees to your loan that you are financing. Heck he could asked for all that money (point and fees) up front in a check but you agreed to have it included in your payoff right?

    So the higher the points and fees the higher the APR.

    Comment by Joe Ewing — June 7, 2013 @ 4:48 pm

  4. Why not title your question “How do you expleain the APR?” What difference does it make whether it’s the non-borrowing spouse or the borrower? Generally neither one has any idea what the APR is.

    Comment by Flora — June 10, 2013 @ 7:16 pm

  5. It is one thing to educate through dispersion of information. It is another to be sarcastic and demeaning and never give a real answer which this blurb does. I had enough of this in past trades dealing with big egos claiming to know something and never give a fellow trade brother a simple answer other than sarcastic criticism. It’s the damn loan officers duty to care about the people who are putting money in his pocket and should be available to answer it.

    Comment by alan — August 19, 2014 @ 11:26 pm

  6. I asked a lender that question here is what he said. The APR is an auditing figure for the lender. They take the figures the lender told the borrower it was going to cost to get the loan. The itemized amount financed is the figures.They take those figures and roll them into an APR figure.Then they compare the intrest rate to the APR. The closer the to are the better the lender did when he quoted all the fees. But then the lender could have been wrong because I never Hurd anyone else say that. I have never been able to find if that was true or not either.

    Comment by Joann Baracosa — September 8, 2014 @ 8:32 am

  7. “Mr and Mrs. Borrower, you’re asking what that number by APR means? It really is just the cost of obtaining the loan plus the actual interest rate you are paying, AS IF you were financing those costs over the life of the loan, which you are not. As you can see from the HUD1, they are all being paid now. The important number for you is the interest rate I showed you on the Note that you signed….that is the actual interest rate you are paying for the life of the loan. By the way, that’s a great rate you have.”

    Comment by Rodrigo Jones — September 8, 2014 @ 6:28 pm

  8. I think you could start out by defining what the APR rate is, I mean, if you say “Annual Percentage Rate” people might understand a bit better. However, I did think we Notaries were supposed to mind our own business (pun intended) and not get into explaining items in a loan. Aren’t we supposed to deflect such things with our bullet proof pen and hope the missiles 7923land on the desk of a lender or some such knowledgeable person?

    Comment by Janet Butler — January 31, 2016 @ 12:04 am

  9. So, wouldn’t an edit button be in order? I noticed that you typed my Captcha # in the midst of my musings!

    Comment by Janet Butler — January 31, 2016 @ 12:06 am

  10. Is it the responsibility of the notary to explain that to them. You are there to facilitate the loan signing. Not explain the documents to them. What if tell them something wrong?

    Comment by Peggy Punday — July 4, 2017 @ 6:24 pm

RSS feed for comments on this post. TrackBack URL

Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *