Refinancing your mortgage can allow you to reduce your interest rate and monthly payments. Taking out a second mortgage can give you access to money that you can use to pay off credit card bills, make home improvements, or put toward something else.
Despite the benefits, either is a big step. After you sign the documents, you might second-guess your decision, have a change in your financial circumstances, or find better terms elsewhere. You can change your mind and back out of a refinance or a second mortgage, but you will have a limited window of opportunity to act.
When You Have the Right to Cancel a Loan Contract
If you refinance or take out a home equity loan or home equity line of credit, that is considered a non-purchase money mortgage since you’re not taking out a loan to buy a house. If you take out a non-purchase money mortgage, you will be able to change your mind. This is known as the right of rescission. You don’t need to have a specific reason to rescind the agreement.
How to Exercise the Right of Rescission
You will have three business days to rescind the loan contract. A business day is any day of the week, except Sundays and legal public holidays. The three-day period begins after you sign the Promissory Note, receive a Truth-in-Lending disclosure or Closing Disclosure form, and receive two copies of a notice that explains your right of rescission. These things usually occur at the time of closing. The three-day period to rescind the agreement doesn’t start until all of these conditions have been met.
If you decide to exercise your right of rescission and cancel the refinance or second mortgage contract, you will have to notify the lender in writing. You can fill out a form provided by the lender or write a letter yourself. You will have to deliver or mail your written notice by midnight of the third business day. Keep a copy of the letter or form for your own records.
What Will Happen After You Contact the Lender
Once the lender has been notified that you want to rescind the contract, it will have 20 days to refund any money or property that you paid when you refinanced or took out the second mortgage. You will still be responsible for making payments on your original mortgage.
When You Might Have More Time to Rescind an Agreement
Under some circumstances, you may have additional time to rescind a contract. If the lender doesn’t provide you with a Truth-in-Lending disclosure or a document that explains your right to rescind, or if the lender provides a form that contains an error, you may have as long as three years to rescind the agreement. If you find yourself in that situation, seek advice and assistance from an attorney.
