The federal law offers a ‘cool-off’ period, if you are refinancing your purchase money loan with another lender or getting a home equity loan. This cool-off period is offered in the ‘right of rescission’. To put it simply, this credit law provides you with some extra time to help you decide on the agreement. Under the Truth in Lending Act of the Federal law, the Right of Rescission offers protection to borrowers.
Thus, when your house is placed as collateral for a loan, you are given some extra time to think over the loan agreement and cancel the credit dealings if you want. You can rescind or officially cancel some selected kinds of home loans within 3 business days and move away without any monetary loss.
However, all kinds of loans do not allow you to enjoy the benefits of ‘Right of Rescission’. The loan must be a personal loan where you are using your home as a security. Again, if you take a home equity loan and then find a better offer a few days later, you can rescind the deal within three business days. Furthermore, if you want to purchase a car and take a home equity line of credit, and within a couple of days the refinancing deal does not seem promising, you can rescind the loan.
But then, the right does not apply to all kinds of loans. A mortgage planned primarily to purchase a home cannot obtain the right of rescission. Just in case, if you take a loan and start building up your house, you get a short-term construction loan, and repay the loan with permanent mortgage once the house is complete.
For both kinds of loans (construction loan and permanent mortgages), you can avail the right of rescission. Again, you don’t have a right of rescission, if there is loan refinancing with the same lender, and the house in question is not your principle house. Money borrowed for business or else from a state agency also does not have a right of rescission.
Thus, with such lines drawn you can always apply for the right of rescission for many other types of loans. In some particular kinds of installment loans, where a fixed amount is borrowed and the payment is completed within the agreed schedule, you can avail the right of rescission.
As mentioned before, the right of rescission provides you three surplus days to re-evaluate your decision to take up the loan i.e. you can cancel your credit transactions till the midnight of the third business day. The extra time is also referred to as the waiting period, where no action in connection to the loan can be taken by the lender. The Deed of Trust or mortgage will not be valid until the 3rd day of the waiting period passes by. The first day is counted as the day of signing of contract.
Following this, you receive a Truth in Lending disclosure elucidating the chief terms of the loan including the finance charge, the total amount, the payment schedule and the annual percentage rate. In case of rescission, the 3 business days includes Saturdays, but excludes Sundays and public holidays. To rescind a credit deal implies that the loan is cancelled.
Once you plan to use the right of rescission, the creditor must be informed in writing. Within 20 calendar days after the creditor receives your notice of rescission, he must repay all the money or property given in association with the loan. Remember, the right applies only to your principle home, whether it is a mobile home, house boat or even a condominium.