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The Rescission Period And Your Right To Back Out
A nice little feature that is unique to refinances is a rescission period. This includes structured equity loans.
This limited right to cancel is a 3-day free look period after signing up the papers which allows you to back out of the agreement for any reason that causes you to retract from the contract. To be more specific, the 3 days refer to business days including Saturdays.
It can also be seen as a “cooling off” period before the new mortgage becomes officially effective. Loans for newly purchased properties do not enjoy this feature.
This is possibly because the market for refinancing has a much fiercer competition than those for new loans. And in an effort to entice borrowers to switch banks, a lot of fancy marketing gimmicks are used to create desire within the minds of homeowners.
Sometimes people sign up in the heat of the moment under extreme sales pressure. Only when they get home and have some time to contemplate what they have done, do they realize that they are making a mistake.
You might have spent some time thinking long and hard whether to do a straight out refinance or cash out in the process to release equity in your home. And you finally decided to get your hands on everything you can.
At closing, the loan officer will inform you of the availability of a rescission notice and the process to exercise it.
This allows you a bit more time to rethink your decision and give you the flexibility to walk away from everything. Do not take this clause for granted.
A loan officer who is sales-focused could “conveniently” or “mistakenly” leave out the details of such a term that is enforceable by you.
If you see this little term as something you might exercise, make sure to check with the officer about it before signing any documents.
This is one of those minute details that can potentially help someone save thousands of dollars over the years. Don’t let a moment of ignorance become your downfall.
There could be many reasons why you signed up in the first place.
An example is that the loan offer could be expiring. A turn of events during the 3-day period might also remove your desire for cashing out. Just remember that you are free to change your mind during this unique period.
Maybe a relative decides to give you a friendly interest-free loan after finding out about your financial troubles. Maybe your wife has finally been able to convince you that a new sports car is unnecessary. Or maybe you struck the lottery. Whatever.
The good thing about a rescission period is that you do not need a good reason to justify exercising it.
Nobody can say that your reason for rescinding is not material enough to warrant an official request for cancellation. It is an option that you have the full authority and privilege to enforce at your discretion.
It is in black and white.
Lenders will hold you to task on black and white when you are late in payments. So don’t feel any uneasiness or even a tinge of embarrassment by going back on your word.
You are making a big financial decision and you are looking out for yourself.
Be mindful that even though you can cancel the refinancing agreement, you might still be subject to administrative fees or processing charges.
This is understandable as you have used up the lender’s time and resources. And you can’t fault them for attempting to charge you for it to the letter.
But usually, they try their best not to pass these charges onto you. This is a good reason to be courteous to bankers and loan officers.
Anyway, it is better to incur a small admin fee than to incur 30 years of extra interest charges on a big loan.