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How the Right of Rescission Period for a Refinance Works
Under the terms of the right of rescission period for a refinance, the borrower has three business days after signing loan documents and receiving the Closing Disclosure document to cancel, or rescind, the mortgage. Although you can cancel your refinance after signing loan documents we recommend that you not sign any documents if you find any major issues. The purpose of the right of rescission period is to protect the borrower against lender fraud and deceit.
The three day wait acts as a "cooling off" period so that lenders cannot force borrowers to close on a bad mortgage if the terms have changed to the detriment of the borrower. For example, when you review your loan documents during the right of rescission period you may find added closing costs or that your mortgage rate has increased. You can use the three day waiting period to resolve these issues or potentially cancel your refinance.
About a week prior to your scheduled closing date, the settlement agent provides borrowers with all the loan documents related to the refinance process including the Closing Disclosure which outlines the final, actual terms of the mortgage including interest rate, closing costs and key features. The Closing Disclosure must be provided to the borrower at least three business days prior to the close of the refinancing. Although the lender is legally responsible for the Closing Disclosure, it is typically provided by the settlement agent.
When Does the Rescission Period for a Refinance Start?
The right of rescission period the starts the first business day after you have received and signed your mortgage note or promissory note and received the Closing Disclosure and two copies of the notice of the right to rescind. For example if you receive these documents and sign the mortgage or promissory note on a Monday, the three day rescission period starts the the next day, which is a Tuesday in this case. In this scenario, the rescission period spans Tuesday and Wednesday and ends at Thursday at midnight.
Your loan can fund the first business day after the rescission period ends, which is Friday in the above example. Your refinance lender can charge interest from the date of funding until the end of the month in which the refinance closes. You are also responsible for paying interest to your current lender from the first of the month until the closing date.
Borrowers should use the three day cooling off period to compare the final mortgage terms presented in the Closing Disclosure to the initial terms presented in the Loan Estimate provided by the lender at the beginning of the refinance process. In the event that the terms of the refinancing changed significantly, the right of rescission period provides the borrower with the opportunity to cancel the loan. Significant changes could include a higher interest rate or costs or unexpected fees. Remember, for a refinance the borrower has up to three business days after signing loan documents to cancel the mortgage.
As referenced above, two copies of the notice of the right to rescind are included in the loan documents the settlement agent provides to you to sign. If you decide to rescind, or cancel, your mortgage, your must provide a signed copy of the notice or a written letter to the lender prior to midnight of the third business day after you sign loan documents. We recommend that you retain copies of all documents you provide to the lender related to rescinding your mortgage.
We highly recommend that borrowers use the three day right of rescission waiting period to carefully review the Closing Disclosure to ensure that your final, actual mortgage terms match the terms promised by the lender
Please note that the day that you sign your loan documents, public holidays and Sundays do not count against the three day right of rescission period; however, Saturdays do count against the three days. For example, if you sign your loan documents on a Friday, you have until the following Tuesday at midnight to rescind your mortgage (assuming there are no holidays that week).
If you decide to cancel your mortgage you are free to start the refinance process over with a different lender. Although starting the process over requires more time and you may be out non-refundable costs such as appraisal and lender fees, canceling a bad mortgage saves you money over the life of the loan and possibly at closing depending on the issues you identified. Additionally, the right of rescission period only applies to refinances of owner occupied properties and not non-owner occupied properties. The three day rescission period does not apply to home purchase mortgages.
If you are considering switching lenders we recommend that you contact multiple lenders in the table below to compare refinance proposals. Comparing multiple lenders enables you to find the best refinance terms including the lowest rate and fees. If you change lenders make sure that your new lender can close your mortgage within your desired time frame.
Sources
“How long do I have to rescind? When does the right of rescission start?” CFPB. Consumer Financial Protection Bureau, September 25 2017. Web.
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