Many laws are designed to protect consumers. One of those provisions is the mortgage rescission period, which is part of the the Truth in Lending Act. The rescission period gives consumers a chance to think about the mortgage refinancing transaction they have just initiated. During the rescission period, the lender cannot officially complete the transaction by filing the mortgage document with the court.
- Consumers are given three business days to think over their mortgage refinancing contract. A rescission period only applies to mortgages that are being refinanced, not to first-time home buyers, the first mortgage on a home or consumers who obtain loans to build a home. The rescission period applies if you refinance with a new lender, but there is no rescission period if you refinance with the same lender. The property has to be owner-occupied in order for the rescission period to be in effect. There is no rescission period if the refinance is for a vacation home or an investment property.
- The rescission period begins the day after the loan documents have been signed and ends three business days later at midnight of the third day. If you sign loan documents on Tuesday, the rescission period includes Wednesday, Thursday and Friday. The period ends on midnight Friday. Saturday is considered a business day for purposes of the rescission period, but not Sundays or legal holidays.
- This period of time gives a borrower time to find more cost-effective terms and agreements with other lenders. It also gives him time to review all the language in the refinancing documents to see if this is the best contract. When the rescission period has ended, the lender is free to complete the transaction and the loan is funded.
- Home equity lines of credit allow customers to take cash advances or draws against the equity in the home. If you have a home equity line of credit, the rescission period applies. There are limitations because the right of rescission period applies to the new amount of the transaction or cash received, not the entire credit line, and it only applies if you live in the home as your primary residence.
- If a borrower has an outlay of cash associated with the refinancing, she should be able to receive the cash back from the lender if she exercises the option to rescind the loan.
- A consumer can waive his right of rescission if he has a legitimate financial crisis or emergency, such as repairs for a flooded basement, and needs the transaction to be completed sooner.
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