The Right of Rescission on a Mortgage: What It Means and When to Use It

The right of rescission is a very important part of the law that protects consumers from unfair practices. It’s an aspect of mortgage lending that many people don’t know about but should. This blog post will discuss what it is when it starts and end and how to use it correctly to get your money back if you want to cancel your loan before closing on a home.

What Is The Right Of Rescission

The right of rescission is the borrower’s option to cancel their home equity loan, line of credit, or refinancing agreements within 3 days without financial penalty. It was born out of the Truth in Lending Act (TILA).

If the borrower has borrowed anything from the creditor, they have the right to retain it. The lender must comply with the request for a full refund within 20 days of rescission, without question.

When Does The Three Day Period For The Right To Rescind Start and End?

The rescission period begins when the following events occur:

  • You signed the contract (aka promissory note)
  • You received the truth in lending disclosure, often included in the closing disclosure form
  • You received two copies of the right to rescind form

As soon as these three things have happened, the right to rescind is activated and will end 3 business days after closing. These times are defined by excluding Sundays and federal holidays. The rescission period is typically three days. If you can be flexible with when to exercise your right of rescission, the National Notary Association’s annual schedule may make it easier for you to do so.

What Gets Paid Back?

The lender has to pay back the borrower for any loan or closing costs paid, such as points and fees. The escrow company may also refund any mortgage insurance premiums but not taxes or other third-party charges (like homeowners’ association dues).

The loan officer should also be able to answer any questions you have about the loan. If they try to brush off your concerns, this may indicate something wrong with the loan, and it’s wise for you to walk away from it.

What Can You Do When The Loan Officer Doesn’t Clearly Explain All This To You?

The best thing you can do for yourself and your family when dealing with a mortgage contract, or any other financial product, is to work with someone knowledgeable about the industry. If the lender tries to brush off your concerns, this may be an indication that there is something wrong with the loan, and it’s wise for you to walk away from the deal.

So, we learned that right of rescission is a 3-day window in which you can stop the mortgage process and withdraw from the contract. The conditions for this are pretty specific, so be sure to consult with your loan officer about when it starts ticking. If not adequately explained by a lender who knows what they’re talking about, you could miss out on crucial information that might affect your decision. Ready to get started? Call us today!