Home Mortgage Right of Rescission

Under the Truth in Lending Act, the right of rescission is a protection that is given to borrowers that are obtaining certain types of loans.  This gives the borrower the right to cancel within three working days of signing the documents for the loan.  They can also get a full refund of any funds that have already been paid.  The right of rescission is designed to give you the three days to reconsider whether you want the loan in question, which uses your home as collateral.  You may have reconsidered a refinance or a home improvement loan that uses your home as collateral, or may have decided to look for other loan options, for example.  This three-day period is often called a cooling-off period, and gives you a chance to decide if the loan is what was expected and what you really want to do. 

The right of rescission applies to certain types of loans.  For example, a refinance with a new lender or a cash-out refinance, in which you are taking money out that is greater than your current mortgage for whatever purposes.  It doesn’t apply in every case where you use your home as collateral on a loan.  For example, you can’t use a right of rescission on a loan which is used to build or purchase your primary home, when a creditor for your loan is a state agency, or if you refinance or consolidate with your current mortgage lender without borrowing additional funds.  The right applies to your primary residence only.  It applies regardless of the type of residence; single family home, 2 units, mobile home, condominium or townhouse.  It also applies to some installment loans, where a fixed amount is borrowed and the payments are made on a schedule, or to a HELOC (home equity line of credit). 

After you sign the loan documents, you have the right to cancel, or rescind the transaction until the third business day at midnight.  Business days for the purpose of rescission do not include Sundays or public legal holidays, but they do include Saturdays.  The day you sign the contract is considered to be the first day.  A Truth in Lending disclosure form will be given to you, which informs you about important disclosure in the contract.  The disclosures on the truth in lending form inform you about the credit terms such as the amount you have financed, the annual percentage rate, the finance charge, the payment schedule and the total number of payments.  You are also given two copies of a right of rescission notice that explains your rescission rights. 

While your transaction is in the three-day waiting period you won’t receive any funds from the loan until after this waiting period is over.  If you use your right to rescind when mortgage refinancing and decide to cancel the transaction, you must provide written notice of cancellation to the lender.  Be sure to follow the procedures outlined regarding your right of rescission carefully.  Visiting the lender without putting something in writing or making a telephone call does not qualify.  The lender is required to return any property or money that was given in connection with the loan within twenty calendar days after receiving your notice of rescission, and is required to make sure any action that is necessary to show that the termination of the security interest has been completed. 

You can rescind the loan you sign within the three business day for whatever reason you choose as long as the loan type falls under the federal laws for having a right of rescission.  During those three days after you sign for a loan, if you find better terms at another lender or change your mind, you may cancel or rescind the loan.  All fees or costs to obtain the mortgage loan must be returned to you when you rescind a home loan.