The Right of Rescission is a federal consumer protection under the Truth in Lending Act (TILA, Regulation Z) that grants borrowers a three-business-day ‘cooling-off’ period to cancel certain loans secured by their primary residence. This right prevents borrowers from feeling pressured into quick decisions on loans like mortgage refinances, home equity loans, or Home Equity Lines of Credit (HELOCs).
At closing, lenders must provide borrowers with the TILA Disclosure Statement outlining loan terms, plus two copies of the Notice of Right to Cancel form, which explains rescission rights. The three-day countdown begins the day after the borrower signs the loan, and receives these disclosures. Saturdays count as business days, but Sundays and federal holidays do not, so the period expires at midnight of the third business day.
To rescind, borrowers must notify the lender in writing—via mail, fax, or email—before the deadline. Certified mail is recommended to have proof of timely notification. Once rescinded, the lender has 20 days to refund all fees paid and must release the lien on the home. Any borrowed funds must be returned by the borrower.
Rescission rights apply only to loans secured by the borrower’s primary residence. This includes mortgage refinances (with a new lender), home equity loans, and HELOCs. They do not apply to purchase mortgages, construction loans, or loans secured by second homes or investment properties. Additionally, refinancing with the current lender usually lacks rescission rights unless additional funds are borrowed.
If the lender fails to provide required disclosures, the rescission period extends from three days to three years, offering borrowers extra protection against improper lending practices.
For more details on related loan types and refinancing, see our glossary entries on Mortgage Refinance, Home Equity Line of Credit (HELOC), and Home Equity Loan.
Learn more from authoritative sources like the Consumer Financial Protection Bureau: Right of Rescission.
Example: The Miller family closes on a $50,000 HELOC to fund home improvements. After reading disclosures that evening, they decide the variable rate poses too much risk. Within the three-day window, they notify the lender in writing to cancel. The lender cancels the loan, refunds fees, and removes the lien, as required by law.
This right is vital for safeguarding consumers against hasty decisions involving their homes—a critical financial asset. Always read your loan disclosures carefully and know your rescission rights before closing.
Sources:
- Consumer Financial Protection Bureau: Right of Rescission
- Regulation Z (12 CFR § 1026.23): Right of rescission
- Investopedia: Right of Rescission Definition