Cancelling Your Home Loan

Federal law stipulates that consumers who refinance first mortgages or obtain second mortgages must cancel their loans within three days of signing the final loan documents. This "three-day right of rescission rule" is what you need to be aware of.

Background Information About The Right To Cancel Rule

A provision in the Truth In Lending Act, which was first enacted in 1968, grants consumers the right to cancel home equity or refinance loans. This law protects consumers by standardizing closing costs and managing closing processes.

Refinances and home equity loans have a disclosure that states you have three days to cancel your loan. This consumer right is enforced by the Consumer Financial Protection Bureau (CFPB).

How The Right To Cancel Rule Works

TILA disclosure guidelines require that closing documents for a home equity loan or will contain two copies of a notice stating your right to cancel the transaction.

If you are certain that you won't cancel your order at the last moment, you can indicate on these documents or other accompanying documents that you want to waive your right of cancellation.

If you do not waive this right, you can cancel your loan until midnight on the third business day following signing your mortgage closing documents. Sundays and holidays do not count as business days.

If you sign closing papers on Thursday before Labor Day Weekend (which also includes a Monday holiday), then you have until Tuesday at midnight to cancel. Therefore, day one of your rescission periods is Friday, day 2 is Saturday, and day 3 is Tuesday.

You can cancel your loan up to three times if you don't have two copies of your right to cancel form in your closing package.

How To Cancel Your Order

Cancellations must be made in writing Telephone, or face-to-face cancellations are not accepted.

To cancel, you can either use the cancellation forms included in your closing package or send your letter directly to the lender.

The CFPB recommends that you send written notices in a timely manner, regardless of whether they are mailed or delivered before midnight on the third day. Keep a copy of any proof that it was received or mailed on time.

Your lender must reimburse any transaction costs within 20 days after you cancel. You must also return any fees or loan funds the lender paid you.

You must continue to pay your existing loan if you cancel the refinance.

Consumer Protections For Home Purchase Loans Are Different

Refinances and home equity loans are exempted from the three-day cancellation period. However, it doesn't apply to home purchase loans.

Nonetheless, the new settlement procedure laws that became effective on October 3, 2015, offer significant consumer protections throughout the entire process of obtaining a purchase loan.