Right to Rescission
Definition and meaning of Right to Rescission in real estate.
The right to rescission is a consumer protection provision under the federal Truth in Lending Act that allows borrowers to cancel certain home loans within three business days of closing without penalty.
In more detail
This right acts as a cooling-off period, giving homeowners time to review their loan documents and ensure they are comfortable with the terms. It applies primarily to home equity loans, home equity lines of credit, and refinances on a primary residence. It does not apply to purchase mortgages for buying a new home.
If a borrower exercises this right, the lender must return all fees and cancel the security interest in the property.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Typical timing | Three business days including Saturdays but excluding Sundays and federal holidays |
| Applies to | Refinances and home equity loans on a primary residence |
| Governing law | Truth in Lending Act, also known as Regulation Z |
A homeowner closes a home equity line of credit to finance a kitchen remodel. After reviewing the final documents, they decide the monthly payments are too high, so they sign and deliver the cancellation form within the federal three-day window to void the loan.
Frequently asked questions
Can I cancel a loan used to purchase a new home under this right?
No, the right to rescission does not apply to residential purchase money mortgages used to buy a home. It is reserved for refinancing or borrowing against a home you already own.
What happens to the money I paid if I rescind?
The lender is legally required to refund all fees, including application fees and appraisal costs, within twenty calendar days of receiving your cancellation notice.