As part of the federal Truth-in-Lending Act, refinancing homeowners are granted a 3-day "cooling off" period post-closing during which they retain the right to rescind, or "cancel", their recent refinance without penalty or cost.
The Right To Cancel is protection against surprises at closing and/or a change of heart. It's also a safety valve for homeowners signing paperwork under duress. With 3 days to revisit and rethink the terms of a loan, a homeowner can maintain tighter control of his/her financial situation.
If you ever have the wish (or need) to execute your right to rescind, be aware that the process is a formal one. The required steps must be completed on-time, and in order, or else your request will be invalid.
The process starts with a document labeled "Right To Cancel". It's included in your closing package and lists the terms of a rescission in straight-forward language. Among the key points :
- You have 3 business days during which to cancel your loan
- When you cancel the refinance, the entire transaction is cancelled
- You must submit your Right To Cancel in writing
"Business day" is defined by the government to be every day, save for Sundays and federal holidays. A loan that closes on a Monday, therefore, must be rescinded prior to Friday at 12:00 AM.
Typically, rescission requests are faxed to the settlement agent, notary, or title company assigned with the refinance. It's good practice to ask for an acknowledgement of receipt as proof of delivery, too.
There are some refinances for which the Right to Cancel does not apply, however. This includes refinances linked to an investment property, and loans not collateralized by residential real estate. There are other conditions, too, that may supersede your right to rescind so be sure to ask your lender.