Lauren Nowacki3 minute read
UPDATED: March 31, 2023
Buyer’s remorse doesn’t just happen when you’ve had an impromptu shopping spree. It can also happen when you’ve made a major financial decision, like refinancing your loan.
Luckily, borrowers may have an out. It’s called the right of recission, and it can help people who change their mind about their refinance. But it’s only available for a limited time in the process.
The right of rescission refers to your right to cancel a refinance mortgage contract. The right to rescind period lasts 3 business days and doesn’t start until the promissory note is signed and you receive a Truth in Lending disclosure and two copies explaining your right to rescind.
The right of rescission was established by the Truth in Lending Act (TILA) under the U.S. Federal Law. It’s a guaranteed right, no matter the borrower’s reason to cancel the loan. The lender cannot require an explanation.
Your right to rescind will last 3 business days from the date you sign your promissory note, which is a legal agreement that you will repay the loan by its maturity date. Along with signing the promissory note, you should also receive a Truth in Lending disclosure and two copies of documents explaining your right to rescind.
Day one of the 3-day right of rescission period is the first business day after you receive these documents and sign the promissory note. Keep in mind, the time starts once the last of these events happen. If, for example, you’ve signed the promissory note and received the documents explaining your right to rescind, but haven’t gotten the Truth in Lending disclosure, your 3-day period won’t start until you receive the disclosure.
Keep in mind that not all days are business days. Sundays and legal public holidays are not considered business days. However, Saturdays are considered business days.
Here’s a basic example of someone rescinding their loan in a normal 3-day period.
John received his documents and signed his promissory note on Monday, March 10. The first day of his 3-day period starts Tuesday, March 11. That means John has until midnight on Thursday, March 13 to cancel his loan.
Here’s another example of someone rescinding their loan when there is a non-business day in a 3-day period.
Larry received his documents and signed his promissory note on Thursday, June 10. His first day in his 3-day period is Friday, June 11 and his second day is Saturday, June 12. Since Sunday is not considered a business day, his third and final day to rescind is Monday, June 14. Larry has the right to rescind until midnight on Monday, June 14.
Here’s another example of someone rescinding their loan when there are multiple, non-business days between their 3-day period.
Sarah received her documents and signed her promissory note on Friday, December 31. Since the next day is New Year’s Day, a legal public holiday, and the day after that is a Sunday, the first day of her 3-day period starts on Monday, January 3. She has until midnight on Wednesday, January 5 to cancel the loan.
If you wish to exercise your right to rescind a mortgage refinance, it must be done in writing and mailed or delivered before the 3-day window closes. The lender can provide a form for you to fill out or you may write a letter expressing your desire to rescind.
Make sure to make a copy of the form or letter and any other evidence of your rescission. That may include confirmation of the delivery of the form, confirmation that it was mailed on time and any other correspondence with your lender.
Once you’ve exercised your right, the lender has 20 days to refund all the fees it charged and relinquish its claim on the property.
The right of rescission only applies to certain types of mortgages. It does not apply to the purchase of a new home, vacation home or second home. Once the closing documents are signed, you cannot cancel a loan to purchase a home.
The right of rescission does apply to a refinance, home equity loan, home equity line of credit (HELOC) or reverse mortgage.
Keep in mind that a right of rescission applies to new loan transactions with another lender, not the current mortgagee.
The right of rescission means that you can withdraw from a refinance with 3 days of signing a promissory note and receiving the required documents. A refinance can be a big financial commitment, so it’s important to know that you have the opportunity to change your mind. If you’ve just signed the promissory note and received the documents and are having second thoughts, it’s important that you act fast as you have a 3-day window period from signing and receiving the documents. For more information and tips on refinancing, check out the Rocket HomesSM Homeowner Guide.
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