If you refinance your mortgage or take out a home equity loan or home equity line of credit, you may question or regret your decision. If so, you’ll only have a brief window of opportunity to back out of the agreement.
When Do You Have the Right to Rescind a Contract Related to a Mortgage?
The federal Truth in Lending Act was implemented to protect consumers from unscrupulous lenders. It gives homeowners the right to rescind an agreement related to a home equity loan or home equity line of credit. It also provides the right to rescind a refinance agreement if the homeowner refinanced through a different lender than the one currently holding the mortgage.
The law does not apply to the initial purchase of a house. The right of rescission also doesn’t apply to a mortgage obtained through a state agency or a loan for a second home or investment property.
If you decide to rescind your contract, you don’t have to explain why. The lender will have to give up any claim to your property and refund all fees that you paid within 20 days of the time when you exercise your right of rescission.
How Long Do You Have to Act?
You will be able to exercise the right of rescission until midnight of the third day after closing. You can rescind a contract after you have signed the credit contract or promissory note, received a closing disclosure or Truth in Lending disclosure and received two copies of a notice explaining the right of rescission.
Figuring out exactly how long you have to rescind your contract may be tricky, though. The rescission period doesn’t count Sundays or federal holidays, and some lenders don’t count Saturdays either. If you sign your contract on a day that isn’t considered a regular business day, the rescission period will begin on the next business day.
How Can You Exercise the Right of Rescission?
You will receive a notice that explains how to rescind your contract. It will include a form for you to fill out, as well as an address for where to send it. The process varies from lender to lender.
If you decide to exercise the right of rescission, make sure that you follow the lender’s procedure carefully. You will have to put your request in writing and document the exact time when you made the request to prove that it occurred within the allowable window of opportunity.
