Right of Rescission

The right of rescission is a consumer protection under the United States Truth in Lending Act that allows a borrower to cancel certain contracts using their primary residence as collateral within three business days of signing, closing, or receiving required disclosures, whichever happens latest. If the borrower rescinds within that window, the lender must refund all fees already paid and the transaction is unwound as though it never happened, with any lien on the home released.

The right applies broadly to home equity lines of credit and most refinances of an existing mortgage, but it notably does not apply to the mortgage used to originally purchase the home, since that exception recognizes that a property sale could not practically be unwound in the same simple way once it has already closed and ownership has changed hands.

If you sign paperwork putting your home up as collateral, other than to actually buy that home, the law gives you a short cooling-off period to change your mind. Cancel within three business days, and you get back every cent you paid in fees, with the deal treated legally as if it never happened in the first place.

• The clock generally starts from whichever happens last: signing the loan documents, closing the transaction, or receiving all required Truth in Lending disclosures from the lender.
• Saturdays count as business days for this specific purpose, but Sundays and federal holidays do not count toward the three-day total.
• The lender cannot release any loan funds to the borrower until the rescission period has fully expired without a cancellation being received.

The right of rescission does not apply to a mortgage taken out to purchase or construct a home, since the purpose of the protection is to let a borrower reconsider pledging a home they already own, not to unwind a property purchase itself after the seller has already relied on the sale closing. Borrowers who believe a lender failed to properly disclose their rescission rights may, in some circumstances, be able to exercise the right for an extended period well beyond the standard three days, sometimes up to three years after closing.

A borrower who wants to rescind must typically notify the lender in writing within the rescission period, and the lender then has a limited number of days to return any fees paid and release its security interest in the home. Because the right of rescission effectively delays when loan funds can actually be disbursed, lenders generally build the mandatory waiting period into their standard closing timelines for any eligible transaction, rather than treating it as an unusual exception to be managed case by case.

Because the right of rescission applies to most refinances of an existing mortgage secured by a primary residence, a borrower refinancing their own home can still cancel within the standard window even though the transaction is replacing an existing loan rather than creating an entirely new pledge of the property for the first time. This means a refinance borrower effectively gets a second opportunity to reconsider terms shortly after signing, something that does not apply to the original purchase mortgage on the same home.

If a lender fails to provide the required notice of the right of rescission or the necessary Truth in Lending disclosures at all, the three-day window does not begin running on schedule, and in some cases the borrower's right to rescind can remain open for a much longer period, potentially years, until the lender's error is corrected. This extended exposure gives lenders a strong practical incentive to ensure every eligible borrower actually receives clear, accurate and timely notice of their rescission rights at the time of closing, rather than treating the disclosure as a mere formality.