If you are refinancing your mortgage and are using your home as security, you should know about a credit
law that gives you extra time to reconsider the loan agreement. When
you use your home as collateral for a loan, you generally 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.
The right of rescission gives you three extra days
to reconsider whether you want to use your home to guarantee repayment
for a mortgage loan. Rescinding a credit transaction means you are
canceling the deal. If you decide to exercise your right of rescission,
you must notify the creditor in writing that you are canceling the
contract. Within 20 days after a creditor receives your notice of
rescission, all money or property you paid as part of the credit
transaction must be returned to you. The law allows you to waive
your right of rescission if you have a "bona fide personal
financial emergency." However, if you waive your right to rescind,
you must go ahead with the transaction.
Unless you waive your right of rescission, you
have until midnight of the third business day after the transaction
to cancel the contract. You should be aware that for rescission
purposes, business days include Saturdays, but not Sundays or legal
public holidays. For example, if you close on a Friday, you have
until midnight on the following Tuesday to rescind, before the loan
funds.
During this waiting period, your creditor should
not take any action on your transaction. For example, the creditor
should not give you the money from the loan, payoff your current
mortgage, or if your are dealing with a home improvement loan, the
contractor should not deliver any materials or start work.
There is no right of rescission on a purchase of
a home, a construction loan, a refinance of a second home, or on
the refinance of a investment/rental property. All
refinances and 2nd mortgages, and home equity lines do have a right
of rescission period.
