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Your Right of Rescission

Right of RescissionHave you been on the fence about mortgage refinancing but fear of making an expensive mistake is holding you back? Are you familiar with your mortgage refinance right of rescission? Not many homeowners are familiar with the three-day right of rescission which lets you undo a mistake if you get buyer’s remorse. Here’s what you need to know about your right of rescission to give your mortgage rate shopping peace of mind.

Three Day Right of Rescission

There is a little-known provision in the Truth-in-Lending law that gives you three days to think it over when refinancing your home. This buyer’s remorse provision allows you to back out completely anytime during the rescission period before your mortgage is funded.

Your right of rescission starts once the closing papers are signed and lasts for three business days, excluding Federal holidays. The right of Rescission is essentially your right to cancel your mortgage refinancing transaction and get your fees refunded if you’re not satisfied for any reason.

You Have the Right to Change Your Mind

During your three-day rescission period you have the ability to back out if you find a better deal or simply change your mind about refinancing. There is no penalty and you should get your fees back.

If you’re uncomfortable with the deal you’re getting because the broker was pushy or you’ve heard the lender engages in predatory lending practices that’s more than enough reason to rescind the home loan and take your business somewhere else.

Three Day Rescission Rules

There are rules for the right of rescission like anything else. Your rescission period starts at midnight the day after your closing documents are signed. The period ends after three business days, excluding Sundays and Federal Holidays. (Good Friday is not a Federal Holiday and counts towards your Rescission period)

At midnight on the third business day your rescission rights expire and the lender will fund your home loan. At this point there is no going back; changing your mind at this point means you will have to refinance again and lose all of your closing costs, possibly even get hit with a prepayment penalty.

If you’re in a hurry to get your new home loan funded and don’t want the three-day rescission period there is no way around this rule. You cannot waive your right of rescission.

Here’s an example to illustrate the three-day rescission period:

Suppose you sign your closing documents on a Thursday. Your rescission rights begin Friday, giving you Saturday, Monday and Tuesday until midnight to change your mind. Your lender will fund your home loan on Wednesday after your right of rescission expires. Remember that Sunday does not count towards your three-day rescission period.

Exceptions to the Rule

It is worth noting that your rescission rights only apply to mortgage refinancing. If you’re purchasing a home you’re not covered for buyer’s remorse. This rule only applies to your primary residence; investment properties do not get a three-day period to change your mind.

If you choose cash out refinancing your rescission rights only apply to the cash-out part of your home loan. Your Home Equity Line of Credit (HELOC) is protected under the three-day rescission period for the amount you take out, not the entire credit line.

If you’re considering changing your mind during the three days make sure your loan originator is on the level with you about executing your right to rescind the loan AND contact your lender directly. It’s not uncommon for a broker to lie just to get the loan funded and protect their commission. It’s a good idea to discuss your right of rescission with the loan officer as part of refinance rate shopping just so they know you’re aware of your rights under the law.

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