
Right of Rescission
The right of rescission is a right, set forth by the Truth in Lending Act (TILA) under U.S. federal law, of a borrower to cancel a home equity loan or line of credit with a new lender, or to cancel a refinance transaction done with another lender other than the current mortgagee, within three days of closing. The right of rescission is a right, set forth by the Truth in Lending Act (TILA) under U.S. federal law, of a borrower to cancel a home equity loan or line of credit with a new lender, or to cancel a refinance transaction done with another lender other than the current mortgagee, within three days of closing. Established by the Truth in Lending Act (TILA) under U.S. federal law, the right of rescission allows a borrower to cancel a home equity loan, line of credit, or refinance with a new lender, other than with the current mortgagee, within three days of closing. The right of rescission does not exist on a mortgage for the purchase of a home, a refinance transaction with the existing lender, a state agency mortgage, or a mortgage on a second home or investment property. The right of rescission exists only on home equity loans, home equity lines of credit, and refinances of existing mortgages in which the refinancing is done with a lender other than the current mortgagee.

What Is the Right of Rescission?
The right of rescission is a right, set forth by the Truth in Lending Act (TILA) under U.S. federal law, of a borrower to cancel a home equity loan or line of credit with a new lender, or to cancel a refinance transaction done with another lender other than the current mortgagee, within three days of closing. The right is provided on a no-questions-asked basis, and the lender must give up its claim to the property and refund all fees within 20 days of exercising the right of rescission.
The right of rescission applies only to the refinancing of a mortgage. It does not apply to the purchase of a new home. If a borrower wants to cancel a loan, they must do so at the latest at midnight of the third day following the completion of the refinancing, including having received a mandatory Truth in Lending disclosure from the lender and two copies of a notice advising them of their right to rescind.




Historical Context of the Right of Rescission
The TILA protects the public against inaccurate and unfair credit billing and credit card practices. Among other things, it requires lenders to provide borrowers with relevant information about their loans, along with the right to cancel loans. The right of rescission was created to protect consumers from unscrupulous lenders, giving borrowers a cooling-off period and the time to change their minds.
Not all mortgage transactions have the right of rescission. The right of rescission exists only on home equity loans, home equity lines of credit, and refinances of existing mortgages in which the refinancing is done with a lender other than the current mortgagee. The right of rescission does not exist on a mortgage for the purchase of a home, a refinance transaction with the existing lender, a state agency mortgage, or a mortgage on a second home or investment property.
How to Exercise the Right of Rescission
The TILA does not provide a formal way for consumers to exercise their right of rescission. However, the lender is obligated to give the borrower a notice advising of the right to rescind, and that notice should include the procedure used by the lender when a borrower wants to cancel a transaction. If it does not, the borrower must ensure that, in the three-day time frame, they make their intention to cancel the loan clear, and they do so in writing.
Borrowers also have the obligation to prove that the notice was given during the right period and should thus make sure that they can document the moment when the notice was sent.
Related terms:
Cash-Out Refinance
This mortgage-refinancing option—the new mortgage is for a larger amount than the existing loan—lets you convert home equity into cash. Use it with care. read more
Dodd-Frank Wall Street Reform and Consumer Protection Act
Dodd-Frank Wall Street Reform and Consumer Protection Act is a series of federal regulations passed to prevent future financial crises. read more
Federal Housing Administration (FHA) Loan
A Federal Housing Administration (FHA) loan is a mortgage insured by the FHA that is designed for home borrowers. read more
Home Equity Loan
A home equity loan is a consumer loan secured by a second mortgage, allowing homeowners to borrow against their equity in the home. read more
Investment Property
An investment property is purchased with the intention of earning a return either through rent, future resale, or both. read more
Line of Credit (LOC) , Types, & Examples
A line of credit (LOC) is an arrangement between a bank and a customer that establishes a preset borrowing limit that can be drawn on repeatedly. read more
Pre-Foreclosure
Pre-foreclosure refers to the early stage of a property being repossessed due to the property owner’s mortgage default. read more
Refinance
A refinance occurs when a business or person revises the interest rate, payment schedule, and terms of a previous credit agreement. read more
Regulation Z
Regulation Z is a U.S. Federal Reserve Board regulation that implemented the Truth in Lending Act and introduced new protections for consumer borrowers. read more
Required Cash
Required cash is the total amount of funds that a buyer must deliver to close on a mortgage or to finalize a refinance of an existing property. read more