Understanding the Right of Rescission: Loan Cancellation Explained

The Right of Rescission is a consumer's right under federal law that allows a borrower to cancel a loan within three days of signing final loan docs, if their primary residence was used to secure the loan. The federal Truth in Lending Act of 1968 provided the provision to give the borrower a cooling off period to decide if they wanted to follow through with the terms and conditions of the loan. The law does not apply to non-occupant properties. Federal law requires the lender to disclose to the borrower at signing their right under the law. The rescission period begins after the borrower signs all the loan documents.

Exercising The Right

The borrower has to notify the lender or closing agent in writing within 72 hours of signing the documents that they're exercising their right to rescind. The borrower can either sign the form received at closing or write a letter expressing their desire to rescind the mortgage. If the borrower exercises their right they are under no obligation to pay any fees associated with the rescinded mortgage. The borrower can exercise their rights from Monday to Saturday as long as it is within their 72 hour window. Sundays and federal holiday are not included in the 72 hours waiting period.