Have you ever made a decision you later regretted, only to wish you could have taken it all back?
Well, you might be in luck. The “right of rescission” period is a provision under the Truth in Lending Act that essentially gives homeowners who are refinancing their mortgages a chance to mull things over before committing to the new loan terms.
If a homeowner decides to refinance their mortgage, once loan documents are signed, they will have the right to rescind for a period of three business days.
The right to rescind is essentially the “right to cancel” the mortgage transaction and have any fees refunded if they aren’t happy with the loan for any reason. It’s basically a consumer protection mechanism.
Technically, all fees should be refunded to the consumer if they choose to rescind the mortgage. This includes all lender fees (application, processing, etc.), broker fees, and third party fees, such as title and appraisal fees, whether paid to the lender or directly to a third party.
The only non-refundable fees are those paid by a consumer to a third party that take place outside of the credit transaction, including things like building and zoning permits.
Assuming the borrower wants to rescind the mortgage, they must provide written notice to the lender during the rescission period. The bank/lender must then take the necessary steps to indicate that the transaction is terminated by canceling loan documents, filing the release/termination statements in the public record, and refunding fees to the borrower.
This must take place 20 calendar days after receipt of a notice of rescission.
Rescission Period = Time to Change Your Mind
During the rescission period, the borrower has the opportunity to assess the situation and make absolutely certain they want to go through with the transaction.
At this time, they can think things over and change their mind if need be. And most importantly, if at any time during those three days they decide they want to back out entirely, they can do so without penalty.
Perhaps you felt pressured by your bank or mortgage broker, or feel you were a victim of predatory lending. This would be a great time to rescind the mortgage and go someplace else, or not even go through with the transaction at all.
When the Right of Rescission Period Begins and Ends
The rescission period begins at midnight the day after loan documents are signed, and ends three business days later, including Saturdays, but not Sundays or federal holidays.
At midnight on the third business day the rescission period is over, and the signed loan documents become official.
Example of a right of rescission period:
If loan documents are signed on Monday, the rescission period begins Tuesday, and ends Thursday night at midnight. On Friday the loan could then fund and record.
If loan documents are signed on Thursday, the rescission period begins on Friday, and ends Monday at midnight because Sunday doesn’t count as a business day.
In certain circumstances, you may also be able to waive your right of rescission to speed up the loan process, though there must be extenuating circumstances, specifically a “bona fide personal financial emergency.”
The bank or lender cannot fund the loan until the rescission period is over.
There Isn’t a Rescission Period on All Mortgage Transactions
However, the rescission period isn’t available for all mortgage transactions.
It is limited to refinances on owner-occupied properties only! Purchase transactions do not have a rescission period.
Additionally, vacation/second homes and investment properties do not have a rescission period, even if it is a refinance transaction!
*For cash-out refinances financed with the same original lender, the cash-out amount is the only portion that carries a rescission period.
Home equity lines always have a right of rescission period, unless the entire line amount is used to fund a purchase transaction. For example, it is quite common for a HELOC to be used entirely as a purchase-money second mortgage, meaning no rescission.
Make sure you know your (pardon the pun) rights when it comes to the right of rescission. Loan officers and mortgage brokers may not give you all the facts, or they may lie to ensure the mortgage funds and they receive their commission, so stay informed.
Lastly, and this goes without saying, be sure you’re 100% clear on the rescission rules for your particular mortgage before you sign, not after…don’t be afraid to ask questions early on to avoid any misunderstanding late in the game.