What Is the Three-Day Cancellation Rule?

The three-day cancellation rule, also known as the right of rescission, is a legal right guaranteed by the Truth in Lending Act (TILA) that enables borrowers to renege on a home equity loan, a home equity line of credit (HELOC), the refinancing of an existing mortgage with a different lender, and some reverse mortgages within three days without financial penalty. This allowance applies only when the borrower’s principal residence is used as collateral and is provided on a no-questions-asked basis, meaning you don’t need to give a reason to exercise it.

How the Three-Day Cancellation Rule Works

If you take out a mortgage using the home you live in as 澳洲幸运5官方开奖结果体彩网:collateral, federal law also gives you a three-day window to reconsider and cancel without penalty.

When Does the Clock Start Ticking?

The three-day clock starts ticking as soon as all three of the following events occur:

• You sign the mortgage contract
• You receive the 澳洲幸运5官方开奖结果体彩网:Truth in Lending Act (TILA) disclosure that provides key information about the terms of the loan, including the 澳洲幸运5官方开奖结果体彩网:annual percentage rate (APR) and payment schedule
• You receive two copies of a TILA notice explaining your right to rescind the contract

These things normally happen simultaneously, although it is possible in some circumstances for the disclosure form and the two copies of the notice to arrive before or after the contract is signed. Should that be the case, day one would start when the last of the three events takes place.

Once the clock starts, you have until midnight on the third 澳洲幸运5官方开奖结果体彩网:business day to change your mind and cancel the agreement. Remember, business days don’t include Sundays or legal public holidays, so you could end up having more time if the deal closes on, say, a Friday or just before a federal holiday.

During the waiting period, the lender cannot deliver the loan to you or take any action besides accruing finance charges. If you rescind the agreement in time, however, you won’t pay a cent and will be refunded any money you paid, including for application, appraisal, and 澳洲幸运5官方开奖结果体彩网:title search fees sent to a third party.

Exercising the Right to Cancel

The three-day cancellation procedure should be explained in the paperwork the mortgage lender is supposed to give you. As mentioned above, the lender is obligated to give you a notice advising them of your right to rescind. The easiest way to cancel is to sign this notice and then send it to either your lender or the closing agent. Alternatively, it’s possible to send a letter.

To play it safe and avoid any potential disputes, it’s advisable to get proof of the time you delivered the notice or letter. It’s also wise to document when you received all the paperwork the lender is obligated to send you, just in case it questions the deadline you used.

Once the lender receives your request to cancel, it has 20 days to return any money owed to you as part of the transaction and release its interest in your home as collateral.

Limitations of the Three-Day Cancellation Rule

Using your principal residence as collateral doesn’t guarantee that your loan qualifies for the three-day cancellation rule. There are some exceptions, including when:

• You apply for a loan to buy or build your principal residence
• You 澳洲幸运5官方开奖结果体彩网:refinance your mortgage with the same lender as before and don’t borrow more funds
• A state agency is the lender

Special Considerations

Not everyone appreciateꦯs൩ a three-day cooling-off period. Sometimes, money is needed urgently, and being forced to wait just in case you have a change of heart is a nuisance.

In such cases, it is possible to waive your right to cancel. This can be achieved by providing the lender with a written statement signed and dated by you that describes your financial emergency and articulates your desire to forgo the right to cancel.

The Bottom Line

If you'd like to exercise your right to cancel your home financing agreement, the easiest thing to do is sign the "Notice of My Right to Rescind" document that your lender should have provided you and mail it back. If you didn't get the document, you can write a letter stating that you want to cancel.