3 Day Right of Recission

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If you are refinancing your mortgage and are using your home as security, you should know about a credit law that gives you extra time to reconsider the loan agreement. When you use your home as collateral for a loan, you generally have the right to cancel the credit transaction within three business days. This is called your "right of rescission," and it is guaranteed by the Federal Truth in Lending Act.

 

  • The right of rescission gives you three extra days to reconsider whether you want to use your home to guarantee repayment for a mortgage loan.
     

  • Rescinding a credit transaction means you are canceling the deal.
     
  • If you decide to exercise your right of rescission, you must notify the creditor in writing that you are canceling the contract.
     
  • Within 20 days after a creditor receives your notice of rescission, all money or property you paid as part of the credit transaction must be returned to you.
     
  • The law allows you to waive your right of rescission if you have a "bona fide personal financial emergency."  However, if you waive your right to rescind, you must go ahead with the transaction.

 

Unless you waive your right of rescission, you have until midnight of the third business day after the transaction to cancel the contract. The first day after all three of the following events occurs counts as Day One:

 

  1. You sign the credit contract.

  2. You receive a Truth in Lending disclosure form containing certain important disclosures about the credit contract. These disclosures explain the key terms of the credit being offered: the annual percentage rate; the finance charge; the amount financed; the total of payments; and the payment schedule.

  3. You receive two copies of a notice explaining your right to rescind.

You should be aware that for rescission purposes, business days include Saturdays, but not Sundays or legal public holidays. For example, if you close on a Friday, you have until midnight on the following Tuesday to rescind, before the loan funds.

 

During this waiting period, your creditor should not take any action on your transaction. For example, the creditor should not give you the money from the loan, payoff your current mortgage, or if your are dealing with a home improvement loan, the contractor should not deliver any materials or start work.

For an example of a right of rescission - click here.

There is no right of rescission on a purchase of a home, a construction loan, a refinance of a second home, or on the refinance of a investment/rental property.

All refinances and 2nd mortgages, and home equity lines do have a right of rescission period.