Right to Cancel on Refinancing

As part of the federal Truth-in-Lending Act, refinancing homeowners are granted a 3-day “cooling off” period post-closing, during which they retain the right to rescind or “cancel” their recent refinance without penalty or cost, as part of the federal Truth-in-Lending Act.

The Right To Cancel protects against surprises at closing and a change of heart. It’s also a safety valve for homeowners signing paperwork under duress. With three days to rethink the terms of a loan, a homeowner can maintain tighter control of their financial situation.

If you ever wish (or need) to execute your right to rescind, be aware that the process is formal. The steps must be completed on time, and in order, or else your request will be invalid.

The process starts with a document labeled “Right To Cancel” that is included in your closing package and lists the rescission terms straightforwardly.

AMONG THE KEY POINTS:

• You have three business days during which to cancel your loan
• You can cancel the refinance, and the entire transaction gets canceled.
• You must submit your Right To Cancel in writing.

The government defines “Business Day” as every day except Sundays and federal holidays. Therefore, a loan that closes on a Monday must be rescinded by Friday at midnight.

Typically, rescission requests are faxed to the settlement agent, notary, or title company assigned to the refinancing. It’s also good practice to ask for an acknowledgment of receipt as proof of delivery. However, the Right to Cancel does not apply to some refinances. This includes refinances linked to an investment property and loans not collateralized by residential real estate.

There is a Right to Cancel on Refinancing, however, other conditions may supersede your right to rescind, so ask your lender.

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