Right of Rescission

The right of rescission is a right that homeowners have that allows them to get out of certain loans anytime within three days after the closing. As long as the homeowner notifies the lender within this three-day period, he can cancel the loan for any reason and without any questions. 

The right of rescission is available only with mortgage refinances, home-equity loans and home-equity lines of credit. This rule was put into effect by the Truth in Lending Act. This is a rule that was designed to protect consumers from lenders that use questionable sales tactics in order to close loans.

One of the big benefits of the right of rescission is that it gives a homeowner some time to think. Instead of being bound to a decision that he may have made on a whim or with inadequate information, he can go home and sleep on the decision. If he feels differently about it the next day, he is free to back out.

If a consumer backs out of this type of loan, the lender has to refund all of the fees that were paid. The money has to be returned to the consumer within 20 days of being notified that the loan is off.