As part of the Truth in Lending Act, federal law allows borrowers until the third business day after documents have been signed to rescind or cancel the refinance. You are eligible for the right of rescission if you refinance a loan on your primary residence with a different lender than the one used on the original mortgage.
Furthermore, you can exercise this right on a no-questions-asked basis. Borrowers are not liable in any way, and any monies that have been paid out should be refunded in full.
The Truth in Lending Act or TILA was designed to protect borrowers from predatory lenders. This law gives borrowers a cooling-off period to reconsider whether the financial transaction is advantageous and in their best interest.
The lender should provide you with your right of rescission disclosures. These disclosures should notify you of your right to rescind as well as the proper procedure to follow should you choose to exercise this right. If your lender fails to do so, you have three years instead of three days to rescind the refinance.
Your mortgage loan’s rescission period expires on midnight of the third business day after you have signed your loan. It is important to note that Saturday counts as a business day, although Sunday is exempt. Additionally, legal or federal holidays are not considered business days.
For example, if you sign your loan documents on Thursday, the rescission period begins on Friday. Your deadline is Monday at midnight because Sunday does not count as a business day.
You must inform your lender in writing that you are exercising your right of rescission. Your letter must be mailed by the third business day, even if it is postmarked at a later date.
The Truth in Lending Act states, “Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.” Therefore, the borrower is not held liable for any finance charges and should be refunded all fees within 20 days of exercising the right of rescission.
During the three-day rescission period, the lender will not provide your refinanced mortgage’s cash-out funds to you. It is possible to waive your right of rescission to receive your funds sooner, in the case of an emergency, specifically a “bona fide personal financial emergency,” such as unexpected medical bills. You will need to provide a written statement to your lender describing your emergency and clearly state that you are waiving your right to rescind.