Right of Rescission: What It Is and How to Use It

What is the right of rescission?

The right of rescission is a consumer protection under the federal Truth in Lending Act (TILA). It gives borrowers a short, no-questions-asked cooling-off period to cancel certain home-loan transactions that use their existing primary residence as collateral.

Which transactions are covered?

The right of rescission applies to:
* Home equity loans and home equity lines of credit (HELOCs)
* Reverse mortgages
* Mortgage refinances that use your current home as collateral

It does not apply to:
* Mortgages used to buy or build a home (purchase loans)
* Loans on second homes or investment properties
* Refinances with the same lender when no additional funds are borrowed
* Loans made by some state or local government lenders (state law may differ)

Eligible properties can include a house, condominium, mobile home, or houseboat.

How the three-day cancellation rule works

Under TILA, borrowers have three business days to rescind an eligible loan. Business days include Saturdays but exclude Sundays and federal holidays. The three-day period begins only after all three of the following have occurred:
1. You have signed the loan documents at closing.
2. You have received the required Truth in Lending disclosure detailing loan terms.
3. You have received two copies of the TILA notice that explains your right to rescind.

If any of those disclosures were not provided or were inaccurate, the rescission period can be extended—potentially up to three years.

How to exercise the right of rescission

To cancel the loan you must provide the lender with a written notice clearly stating your intent to rescind before the rescission period expires. Delivery methods accepted by the statute include:
* Mailing the written notice (notice is considered given when mailed)
* Delivering the written notice in person to the lender’s designated place of business
* Historically, telegram was also permitted (rarely used today)

A phone call or an in-person conversation that is not followed by a written notice does not satisfy the statutory requirement.

What happens after you rescind

Once you properly rescind:
* The lender must release its security interest in the property (give up its claim).
* The lender must refund any fees or costs you paid in connection with the loan within 20 calendar days.

Exceptions and special rules

• Purchase mortgage closings do not permit rescission once documents are signed.
• If you are refinancing with the same lender and not borrowing extra funds, rescission typically does not apply.
• Failure to receive proper disclosures can extend the rescission period (up to three years in some cases).
• State or local laws may provide additional cancellation rights.

Related consumer protections

• The TILA rescission right is distinct from the FTC’s “cooling-off” rule, which applies to certain doorstep or in-person sales of goods and services (not real estate or vehicles) and also provides a three-day cancellation window.
• TILA does not create a rescission right for auto loans, though lenders must disclose key loan terms like APR and total cost.

Key takeaways

• The right of rescission gives borrowers up to three business days to cancel certain home loans secured by their primary residence.
• The three-day clock starts only after you sign the loan, receive a Truth in Lending disclosure, and receive two copies of the rescission notice.
• To rescind, you must send a written notice to the lender before the deadline; the lender then has 20 days to return fees and release its claim on the property.
• If required disclosures were not provided or were incorrect, the rescission period may be substantially extended.

If you expect you might change your mind about a home-equity loan or refinancing, confirm in advance whether the transaction qualifies for rescission and keep copies of all disclosures and the rescission notice.