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If you need a home loan, you should know all about the credit law that gives you the extra time to reconsider the loan agreement. When you use your home as collateral for the loan, you usually have the right to cancel the credit transaction within three business days. This is called your “right of rescission”, and it is guaranteed by the Federal Truth in Lending Act. In the case of home loans, the idea of the right of rescission is very important.
´The right of rescission’ gives you three extra days to reconsider whether you want to use your home to guarantee the repayment for the home loan. The right applies even if your home is a condominium, a mobile home, or even a houseboat, as long as it is your principal residence. The right applies to certain installment loans as well, where you borrow a fixed amount and repay the debt on an agreed payment schedule, besides, of course, to home equity credit lines a form of credit in which your home serves as the collateral.
´The Right of Rescission’ is a protection given to borrowers under the ‘Truth in Lending Act’. This right gives the borrowers of certain types of loans, the opportunity to cancel their loan within three business days of signing the loan documents, and thus qualify for a full refund of any money paid. In your rush to refinance the home loans, you may have second thoughts or may want more time to shop for other financing options. This act gives you the extra time to carefully consider your new loan. Sometimes called a "cooling off" period, it allows you those three extra days to be certain that the loan is exactly what you expected.
In order for the loan to fall under the ‘Right of Rescission’ protection laws, it must be for refinancing the loan for your home with a new lender, or a refinance in which you will take cash out, over and above paying off the old or previous mortgage. The right of rescission does not apply in all the cases where your home is used as collateral for the loan. You will not have the right of rescission when: you apply for a loan to purchase or build your principal home; you consolidate or refinance with the same lender who already holds the home loans when no additional funds are borrowed; or when a state agency is the creditor for your loan.
Remember, you have the right to "rescind" or cancel your credit transaction until the midnight of the third business day after the loan documents are signed. The mortgage or Deed of Trust will not be recorded until the three-day waiting period is over. The day you signed the credit contract is considered as the first day.
You will receive a Truth in Lending disclosure form containing certain important disclosures about the credit contract. These disclosures explain the key terms of the credit being offered: the annual percentage rate; the finance charge; the amount financed; the total of the payments; and the payment schedule. You will be given two copies of a notice explaining your right to rescind.
For the rescission purposes, business days include Saturdays, but not Sundays or legal public holidays. During this waiting period, your lender will not take any action on your transaction, nor will you receive the proceeds from the loan until after the three day period has expired. If you do decide to exercise your right of rescission and cancel the loan, you will be required to notify the lender, in writing. So, be careful with the use of the right of rescission in letting you out of your home loan quandary.
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