Right of Rescission

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Right of rescission means you have 3 days after you close on a refinance to cancel or rescind your loan. This only applies to home owner refinances. Investor refinances do not have this option. If you decide to cancel, it is like the refinance never happened even though you signed loan documents.

Right of Rescission Defined

During the rescission period, nothing is being done on your loan. The documents have been signed but that is it. No mortgages are being paid off, no checks cut to you for cash out, and no documents recorded at the county. It sound like you are being punished for something but this is actually there for you.

This can save you from being suckered into a bad mortgage. If you showed up to the closing and the rate you were promised was way higher (classic bait and switch), you may have signed the loan documents anyway feeling the pressure from the loan officer. Now you have an out. If it was not what you wanted or were promised, then you can cancel within those 3 days.

When a mortgage closes, there is a closing day and a funding day. The closing day is when you sign all the documents and the funding day is when the money changes hands and the mortgage becomes official. On a purchase transaction, the closing and funding are on the same day. But because of the refinance right of rescission, the funding day does not happen until the 3 days are up.

After the 3 days are up, the loan funds. This means the title company wires the funds from the refinance to pay off your current mortgage and any other debts being paid off, cuts a check to you for any cash out, and pays the mortgage originator and any other party collecting a fee. If you were expecting cash out, you won’t get it on the day you sign.

The 3 days start on the first day after you sign the loan documents. They do count Saturdays but not Sundays or holidays. For example, if you sign your refinance on Thursday, your loan would fund on Tuesday (Friday, Saturday, and Monday are rescission days).

If you sign on a Thursday and the following Monday was a holiday, your mortgage would fund on Wednesday because Monday would not count as a rescission day. (Friday, Saturday, Tuesday are rescission days).

If you decide to use your mortgage right of rescission, contact the title company and the mortgage originator to ask what their procedure is. The mortgage originator is not going to be happy obviously so be prepared. They can’t stop you from cancelling your refinance within the time allowed. Some have even threatened borrowers with a lien on their home but they can’t do that and you have every right to cancel under the law.

Also, remember when you lock, the lock period has to cover all the way through the rescission period. If your lock expires on the closing day and not the funding day, your lock will be invalid and you will have to relock at worse case scenario.