What is the right of rescission on a mortgage?
Quick insights
- The right of rescission is a federal protection that lets you cancel certain home equity loan, home equity line of credit (HELOC), or refinance transactions within three business days.
- This may include home equity loans or HELOCs secured by your primary residence, not to home purchases.
- The rescission period typically starts after you’ve received the closing documents, the Truth in Lending disclosure and the notice of right to rescind, whichever comes last.
When you close on a mortgage or refinance your home, it may feel like the deal is final the moment you sign the paperwork. However, in some cases, borrowers actually have a little extra breathing room built into the process. This consumer protection, known as the right of rescission, could give you a short window of time to change your mind after closing.
For homeowners, it’s like a safety net. This protection gives you three business days to take a step back, review the numbers and decide whether moving forward makes sense. It comes from the Truth in Lending Act (TILA), a law that requires lenders to provide clear and comprehensive information about loan terms and costs. Under the TILA, borrowers are granted a “cooling-off period”—typically three business days—during which they can review all disclosures and decide whether to proceed with or cancel the transaction. Understanding how this safeguard works, when it applies and how to use it can help you feel more in control of your home financing decisions.
When the right of rescission applies
The rescission clock typically starts ticking once you’ve received three major items: the final closing documents, the Truth in Lending disclosure and the notice of your right to rescind. If one of those pieces arrives later than the others, the countdown starts from the most recent delivery. If you don’t receive the disclosures at all, the rescission period may extend much longer, potentially up to three years.
This protection doesn’t cover every mortgage situation. You generally won’t see it when you’re purchasing or building a brand-new home.
How to exercise the Right of Rescission
If you decide your new refinance or home equity loan isn’t the right fit, you may be able to use your right of rescission. Here’s a look at how the process usually plays out:
- Confirm your loan qualifies: The right of rescission usually applies to refinances, home equity loans or HELOCs secured by your primary residence. It usually does not apply to home purchases or new construction loans.
- Identify when your rescission period begins: Your three-business-day window generally starts once you’ve received all of the following: the closing documents, the Truth in Lending disclosure and the notice of right to rescind. The deadline runs until midnight on the third business day.
- Write a clear notice of rescission: Your notice should include your name, property address, loan number and a short statement that you are rescinding the loan. Sign and date the notice to make it official.
- Deliver the notice on time: Send your notice to the address or contact information listed on the lender’s disclosure. This could be by mail, fax or another accepted method. To protect yourself, consider sending it certified mail or keeping proof of delivery.
- Keep copies of everything: Hold onto your notice and any delivery receipts. Having a paper trail may help if any questions come up later about whether you acted within the deadline.
- Wait for the loan provider’s response: After receiving your rescission notice, the loan provider may need to release the lien, return certain fees and cancel the loan. If any funds were already disbursed, you will be asked to return them.
Consequences of rescission
When a borrower uses their right to rescission, the mortgage deal is canceled and the lender must give back any payments made by the borrower. The borrower is also released from their obligations under the rescinded loan agreement. However, the borrower may still be responsible for paying off any outstanding liens or other debts associated with the property.
What happens if I don't receive the TILA disclosure?
If a lender fails to provide the required TILA disclosures or notice of the right to rescind, the borrower may be entitled to an extended rescission period. This may result in the lender returning any payments made by the borrower and releasing the borrower from obligations under the loan agreement. Borrowers who believe they have not received the necessary disclosures should contact their lender and request the required documents. If the lender fails to provide the disclosures, the borrower may also want to consider seeking the advice of a qualified attorney.
Best practices for borrowers
To ensure that they can exercise their right of rescission if needed, borrowers should:
- Carefully review the TILA disclosures and notice of the right to rescind.
- Verify that they have received all required documents.
- Understand the timeframe for exercising the right of rescission.
- Keep a record of all correspondence with the lender. If you believe you have not received the required disclosures, contact your lender
These strategies can help borrowers protect their rights and make informed decisions about their mortgage financing options.
In summary
The right of rescission, or mortgage rescission, is a valuable protection for homeowners refinancing or tapping into their home’s equity. While it doesn’t apply in every situation, it could give you peace of mind when making one of life’s biggest financial decisions. If you are considering exercising your right of rescission or have questions about this law, you may want to consult with a qualified attorney, financial advisor or Home Lending Advisor.
