What Is The Right Of Rescission And How Long Do You Have To Rescind?

Have you ever felt remorse after making a large purchase, especially a significant one? Well, in some cases, you might be able to return your purchase, but in others, you may not have a way out. In the case of refinancing your mortgage, you can cancel the contract if you feel like you have made a mistake, otherwise known as the right of rescission. If you’re refinancing your mortgage, and think you may want to rescind your contract, here’s everything you need to know about the right of rescission.

The right of rescission, created by the Federal Truth in Lending Act, gives homeowners the absolute right to cancel a home equity loan, or line of credit, until midnight of the third day after closing, excluding federal holidays and Sundays. The right of rescission applies to refinances, HELOCs, and home equity loans, and does not apply to the sale of a new home.

The right of rescission was put in place by the TILA-RESPA Integrated Disclosures (TRID) regulations. TRID guidelines are an attempt to close some of the loopholes that unscrupulous lenders have used in the past to trick consumers. TRID rules dictate what information mortgage lenders need to provide to borrowers and when they must provide it. TRID is a combination and a condensed version of two regulations: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).

In 1968, the government introduced the TILA regulation to discourage dishonest credit lending practices. TILA requires lenders to provide upfront information about payments and interest rates before you sign any loan document. It also requires a 3-day grace period where the borrower can back out of the loan at any time without losing money. This is considered the right of rescission. While TILA doesn’t tell lenders what interest rates they must charge, the regulation allows borrowers the opportunity to shop around and compare lenders.

If you’re refinancing your mortgage and decide you want to cancel or rescind the contract, your 3-day right of rescission period will begin once the following events occur:

• You have signed the credit contract, also known as the Promissory Note.
• You have received a Closing Disclosure form or a Truth in Lending Disclosure.
• You have received two copies of a notice which explains your right of rescission, known as the notice of right to rescind.

The notice of right to rescind will include information on how to exercise the right of rescission. It will also include the form you need to complete to cancel the loan and the designated address of the creditor where you will send it. If you’re ready to cancel your loan, follow the process given on the form. The rescission process begins once creditor or lender receives the rescind notice form at their designated place of business.

If for some reason, you didn’t receive your Truth in Lending disclosure, 3-day right of rescission period, or notice of the right to rescind, or they were incorrect, you might be able to rescind your loan up to three years from your closing dates. If you feel you’re entitled to a three-year right of rescission period, make sure to consult with an attorney.

The rescission period starts three business days after your sign your contract, the date you receive your Truth in Lending Disclosure, or the date you receive your notice of the right to rescind. Business days include all days of the week, besides Sunday and federal holidays which are as follows:

• New Year's Day
• Martin Luther King Day
• Presidents Day
• Memorial Day
• Independence Day
• Labor Day
• Columbus Day
• Veterans Day
• Thanksgiving Day
• Christmas Day

Some lenders may not consider Saturday a business day and may use varying dates when calculating your 3-day rescission period. If you sign your contract on a federal holiday, your rescission period will begin the next business day. You must cancel by midnight of the third day to rescind your loan. If you’re not sure of your rescission period, contact your lender to confirm. 

For example, if you sign your loan contract on Monday, March 30, 2020, your right of rescission period ends on April 2, 2020. But if you signed your contract on April 4, 2020, which is a Saturday, your right of rescission period ends on April 8, 2020. This is because Sunday doesn’t count as a business day.

If you want to compare lenders or think you have made a mistake applying to refinance your mortgage, you are not stuck with your new mortgage. The right of recessions gives borrowers 3 days to cancel or rescind a mortgage refinance, or when taking out a HELOC or home equity loan.  

Refinancing your mortgage can feel overwhelming, but it doesn’t have to be. Contacting a mortgage expert can help you streamline the refinancing process and find the right loan to meet your financial needs.