How to Calculate a Right of Rescission

Purchasing a new home can be a monumental decision. Not only does it represent a transition into a more long-term stage of life planning, but it also carries its fair share of significant financial obligations. When an individual purchases a home, they will often use a mortgage loan or mortgage refinancing to help finance this process. If, for whatever reason, the borrower decides that their mortgage refinancing was a mistake, the right of rescission guaranteed by the federal government ensures that they have a brief window of time to "take back" this decision. Generally speaking, the borrower has a period of three days following the refinance closing to exercise their right of rescission.

The right of rescission is an inalienable right that is granted to all homeowners who may be exploring home refinancing, home equity loans and home equity lines of credit. The right of rescission was first introduced in 1968 as part of the Truth in Lending Act. On a fundamental level, the right of rescission was designed to protect homeowners against predatory or unethical lending practices.

In the event that the homeowner discovered that the terms of their borrowing were different from what had been discussed, they could then exercise the right of rescission to exit this agreement. In contemporary practice, the right of rescission is considered an informal "cooling off period" during which the borrower can reflect on their decision and ensure that it is, indeed, appropriate for their own financial circumstances.

In reality, there are no calculations that must be done to determine eligibility for right of rescission beyond a simple count of days. Individuals who have recently committed to mortgage refinancing, a new home equity loan or home equity line of credit are given 72 hours following the signing of the lending contract to cancel this transaction.

Although the Truth in Lending Act provides homeowners with the right to exit these contracts, it does not outline a specific series of steps that should be followed in order to ensure that the transaction is fully canceled. This is likely due to the fact that each refinancing lender and home equity loan/credit provider will have their own specific means of communication.

That being said, the Truth in Lending Act does dictate that refinancing agencies as well as equity lenders must inform homeowners that they do have the right of rescission available to them if and when they decide to use it. The only regulation dictated by the Truth in Lending Act is that homeowners must notify their lender of their intent to withdraw from the agreement in a formal written document. It is also the burden of the borrower to ensure that they can prove that they have claimed the right of rescission within the correct time frame.

When calculating the 72 hours following the initiation of lending, borrowers should note that federal holidays and Sundays are not considered "qualifying" time. Therefore, if a borrower initiated their lending on Friday at 2:30 pmm., their 72-hour window would not expire until Tuesday at 2:30 p.m. rather than Monday. These fine details can be immensely valuable when calculating your eligibility for the right of rescission.