What is Right of Rescission when getting a home equity loan?

I love talking about homeowner protections, and the right of rescission is one of the most valuable safeguards you have when borrowing against your home's equity. Think of it as your financial safety net - a chance to really think through a major financial decision after signing on the dotted line.

Right of Rescission: The right of rescission is a legal protection that allows borrowers to cancel certain home-secured loans or credit transactions within three business days of signing the agreement. This cancellation right applies to home equity loans and lines of credit, but not to primary mortgages used to purchase a home.

Understanding the Right of Rescission

This protection comes from the Truth in Lending Act, giving you breathing room after making a significant financial commitment. Your home is likely your biggest asset, so having time to sleep on your decision makes perfect sense. Congress created this protection back in 1968 to help homeowners avoid making hasty decisions under pressure from aggressive lenders.

When Right of Rescission Applies

Not all home-related loans come with rescission rights. Here's what's covered:

• Home equity loans

• Home equity lines of credit (HELOCs)

• Refinancing with a different lender than your current one

And what's not:

• Your primary mortgage when buying a home

• Loans for vacation homes or investment properties

• Business loans, even if secured by your home

The Three-Day Cooling Off Period

The clock starts ticking the moment you receive your loan documents, Truth in Lending disclosure, and two copies of your right to cancel. Here's how to count those three days:

• Only business days count (Saturday counts, but Sunday doesn't)

• Federal holidays don't count

• Day one starts the day after you sign

During this time, your lender can't send you any money or start services.

The Cancellation Process

If you decide to cancel, you'll need to:

• Write your cancellation notice (your lender should provide the form)

• Mail or deliver it before midnight of the third business day

• Keep proof of when you sent it

After cancellation, the lender must return any money you've paid and remove their lien within 20 days.

Common Scenarios and Questions

Some situations need special attention:

• If you're married, both spouses have individual rights to cancel

• Medical emergencies rarely qualify for waivers

• The right might extend beyond three days if you didn't receive proper disclosures

Protecting Your Interests

Keep these tips in mind:

• Read everything before signing

• Make copies of all documents

• Save proof of delivery if you cancel

• Talk to a lawyer if something feels off

Right of Rescission in Today's Market

The rise of online lending hasn't changed your right to cancel, but it has changed how some lenders handle the process. You still get the same protections, whether you sign papers electronically or in person.

Making Informed Decisions

Before using your right of rescission, consider:

• Are the loan terms different from what you expected?

• Did you find better rates elsewhere?

• Have your financial needs changed?

Conclusion

Your right of rescission exists to protect you from making rushed decisions about your home's equity. If you're considering a home equity loan, Bellhaven Real Estate's experts can guide you through the process, making sure you understand your rights and options every step of the way.