Help Desk FAQ

Mortgages

 

Do I have three days to cancel a home equity loan?

Yes. When you take a home loan and use your home to guarantee repayment of the loan, federal law gives you three days to reconsider and cancel without penalty. This is called the "right to rescind" or "right to cancel" and it is guaranteed by the Truth In Lending Act. You can rescind for any reason but only if you are using your principal residence—whether it is a condominium, mobile home, or house boat—as collateral for the home loan. (You cannot cancel if the equity loan is guaranteed by a vacation or second home.

 

Under the right to rescind, you have until midnight of the third business day to cancel the credit transaction. Day one begins after all three of the following occur:

  • You sign the credit contract;
  • You receive a Truth in Lending disclosure form containing certain key information about the credit contract, including the annual percentage rate; finance charge; amount financed; and payment schedule; and
  • You receive two copies of a Truth in Lending notice explaining your right to rescind.

Business days include Saturdays but not Sundays or legal public holidays. For example, if the events take place on a Friday, you have until midnight on the next Tuesday to rescind. During the waiting period, the creditor is not allowed to distribute the money for the loan. If you’re dealing with a home improvement loan, the contractor may not deliver any materials or start work.

To rescind, you must notify the creditor in writing—not by telephone or in person. Your notice must be postmarked before midnight of the third business day. When you cancel the contract, the security interest in your home is also cancelled, and you are not liable for any amount, including finance charges. The creditor has 20 days to return all money or property you paid as part of the transaction and release any security interest in your home. If you received money or property from the creditor, you may hold it until the creditor shows that your home is no longer being used as collateral and returns all upfront money you paid. If the creditor does not claim the money or property within 20 days, you can keep it.

If you have a personal financial emergency—such as damage to your home from a storm or other natural disaster—the law allows you to waive your right to rescind and eliminate the three-day period. To waive your right to cancel, give the creditor a written statement describing the emergency and stating that you are waiving your right to rescind. The statement must be dated and signed by you and anyone else who shares in ownership of the home. If you waive your right to rescind, you cannot get out of the transaction.

The right to rescind does not always apply when you are using your home for collateral. However, you may have cancellation rights under state or local law. Under federal law you do not have the right to rescind when:

  • When you apply for a loan to buy or build your principal residence;
  • When you refinance your loan with the same creditor who holds your loan and you don’t borrow any additional funds; or
  • When a state agency is the creditor for a loan.
 

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