Undo a bad refinance with the right of rescission

Hand holding pen and signing mortgage

If you discover that you've made a bad decision after signing the closing documents for a mortgage refinance, you have until the midnight after three full business days to get out of your contract.

A federal consumer protection measure known as the right of rescission, which is part of the Truth in Lending Act, protects consumers from ill-intentioned lenders and from their own poor decisions.

For example, if you got talked into refinancing with an adjustable-rate mortgage and started having second thoughts, the right to rescind would allow you to undo the transaction.

From the law’s perspective, your reason for wanting to rescind isn’t important. You only have to meet the criteria and follow the procedure to cancel your mortgage refinance.

The lender should give you a notice of the right to rescind that describes how to exercise the right and gives the expiration date of the period.

You must rescind the loan in writing. Saturdays count as business days, but Sundays and federal holidays do not.

After the lender receives your notification, the lender has 20 days to refund any fees you paid out of pocket and terminate its security interest in your home.

In a joint refinance, such as one where both the husband and wife are the borrowers, either party has the right to rescind, and the decision is binding on both parties.

An important exception to this rule is that if you refinance with the same lender, the right of rescission does not apply. Also, the right only applies to the refinance of your principal residence, not to vacation homes or investment properties. (And there is no right when you first buy a house.)

Consumers have the option to waive their right, but only in the case of a bona fide personal financial emergency that must be resolved before the period would end.

The right must be waived in writing and must contain a brief description of the emergency and the signatures of all borrowers.

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