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 Home
Equity Mortgage Loans
Cancellation Rule
If you’re
considering applying for a personal loan and using your home to
guarantee repayment, you should know that a federal credit law gives
you three days to reconsider a signed credit agreement and cancel
the deal without penalty. Your "right to rescind" or "right to
cancel" is guaranteed by the Truth In Lending Act. You can rescind
for any reason but only if you are using your principal
residence—whether it is a condominium, mobile home, or house boat—as
collateral, not a vacation or second home.
Under the right to
rescind, you have until midnight of the third business day to cancel
the credit transaction. Day one begins after all three of the
following occur:
-
you sign the credit
contract;
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you receive a Truth
in Lending disclosure form containing certain key information
about the credit contract, including the annual percentage rate;
finance charge; amount financed; and payment schedule; and
-
you receive two
copies of a Truth in Lending notice explaining your right to
rescind.
For rescission
purposes, business days include Saturdays but not Sundays or legal
public holidays. For example, if the events listed above take place
on a Friday, you have until midnight on the next Tuesday to rescind.
During this waiting
period, activity related to the contract cannot take place. The
creditor may not deliver the money for the loan. If you’re dealing
with a home improvement loan, the contractor may not deliver any
materials or start work.
If you decide to
rescind, you must notify the creditor in writing. You may not
rescind by telephone or in a face-to-face conversation with the
creditor. Your written notice must be mailed, filed for telegraphic
transmission, or delivered if by other written means, before
midnight of the third business day.
If you cancel the
contract, the security interest in your home is also cancelled, and
you are not liable for any amount, including the finance charge. The
creditor has 20 days to return all money or property you paid as
part of the transaction and release any security interest in your
home. If you received money or property from the creditor, you may
retain it until the creditor shows that your home is no longer being
used as collateral and returns any money you have paid. Then, you
must offer to return the creditor’s money or property. If the
creditor does not claim the money or property within 20 days, you
may keep it.
If you have a bona
fide personal financial emergency—such as damage to your home from a
storm or other natural disaster—the law allows you to waive your
right to rescind and eliminate the three-day period. To waive your
right, you must give the creditor your own written statement
describing the emergency and stating that you are waiving your right
to rescind. The statement must be dated and signed by you and anyone
else who shares in ownership of the home. But remember: if you waive
your right to rescind, you must go ahead with the transaction.
The right to rescind
does not apply in all situations when you are using your home for
collateral. Among the exceptions are:
-
when you apply for
a loan to buy or build your principal residence;
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when you refinance
your loan with the same creditor who holds your loan and you don’t
borrow any additional funds; or
-
when a state agency
is the creditor for a loan.
In these situations,
you may have other cancellation rights under state or local law.
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