Close this search box.

Table of Contents

Right of Rescission


The Right of Rescission is a legal measure that allows a borrower to cancel a contract or loan agreement within a specified timeline, typically within three business days. It is often associated with refinancing, home equity loans, or mortgage transactions. The purpose of this right is to protect consumers from impulsive decisions or undue pressure, allowing them time to assess the implications and terms of the loan.


The phonetic pronunciation of “Right of Rescission” would be: rahyt uhv ri-sizh-uhn.

Key Takeaways


  1. Definition: The Right of Rescission is a legal right that allows a borrower to cancel a contract (usually in the context of a loan or mortgage) within a certain period of time, typically three business days, without penalty. The borrower has the opportunity to review the terms of the loan to ensure they are not being taken advantage of.
  2. Application: This right is applicable to refinancing transactions, home equity loans, or home equity lines of credit. It does not apply to purchase transactions of any type or mortgage loans on second homes or investment properties.
  3. Procedure: To exercise the Right of Rescission, the borrower must notify the lender in writing within the rescission period. Once the right has been invoked, the lender has 20 days to return the borrower’s fees and finance charges.



The Right of Rescission is an important concept in business and finance because it provides a protective mechanism for consumers against unsatisfactory or deceitful financial transactions. It specifically refers to the legal right a debtor has to cancel a contract within a stipulated time frame, usually three business days, with no penalties or legal implications. This regulation, implemented by the federal Truth in Lending Act (TILA), is crucial as it ensures transparency and fairness in financing dealings, providing potential borrowers with time to fully understand the terms and obligations before committing. Therefore, effectively, it acts as a safeguard for customers against predatory lending practices and impulsive financial decisions.


The Right of Rescission is a protective measure for consumers, laid under the Truth in Lending Act. Its primary purpose is to offer a safety net to borrowers in case they feel they’ve entered a contract under terms they find undesirable or in bad faith. Basically, it allows borrowers to cancel certain types of loans within a specified timeframe, typically three days, after signing a loan agreement. This can be an invaluable tool for consumers who, for any reason, change their mind post-closing but pre-delivery of the funds and provides a safeguard against unwanted commitments.Right of Rescission primarily applies to certain types of credit transactions, notably those linked to the borrower’s primary residence such as a mortgage, home equity loan, or refinance. It is useful in shielding consumers from scenarios where they may have been unduly pressured or manipulated into a loan contract without fully understanding the terms and conditions. Thus, the Right of Rescission is designed to protect individuals from hastily entering into financial deals that might not be in their best interest, giving them more control over significant financial decisions.


1. Mortgage Refinancing: In the United States, under the Truth in Lending Act, homeowners who are refinancing their homes have a right of rescission. This allows them a three-day period after signing the loan documents during which they can cancel the loan without any penalty. The purpose is to give homeowners a chance to reconsider and ensure that refinancing is the best decision for them.2. Timeshare Contracts: Often, timeshare companies will offer a right of rescission, or a cooling off period, in their contracts. This is in order to protect customers from impulsive decisions after high-pressure sales pitches. In this scenario, a customer who has purchased a timeshare can rescind their contract within a certain number of days after purchase, the specific period is determined by state laws.3. Home Equity Lines of Credit (HELOC): Similar to mortgage refinancing, a right of rescission applies to the establishment of a home equity line of credit. This gives borrowers a three-day period to cancel their line of credit after signing the paperwork. This way, the borrower has adequate time to think about the long-term consequences of opening a line of credit attached to their home’s equity.

Frequently Asked Questions(FAQ)

What is the Right of Rescission?

The Right of Rescission is a legal right that allows a borrower to cancel a home equity loan or line of credit with a new lender, or to cancel a refinance transaction done with another lender other than the current mortgagee, within three days of closing.

When does the Right of Rescission period start and end?

The Right of Rescission period begins after all the loan documents have been signed, and it ends three business days later. If the third day falls on a weekend or a legal holiday, the rescission period is extended to the next business day.

Is the Right of Rescission applicable to all loans?

No, the Right of Rescission only applies to refinance transactions or home equity lines of credit. It does not apply to the purchase of a new house or a rental property.

Who has the Right of Rescission?

The Right of Rescission is granted to all individuals listed on the loan documents, providing each with the option to cancel the loan.

What steps must be taken to enact a Right of Rescission?

To enact a Right of Rescission, the lender must be notified in writing before the end of the rescission period. All money paid as fees or closing costs must be refunded by the lender, and the consumer’s property is returned to its pre-loan state as if the loan had never existed.

Does enacting the Right of Rescission have any impact on my credit score?

Exercising the Right of Rescission will not directly impact your credit score. However, it may indirectly affect future loan approvals, as some lenders may be hesitant to extend credit to those who have previously rescinded a loan.

Are there any penalties or costs for exercising the Right of Rescission?

No, there are no penalties or costs associated with exercising the Right of Rescission. The lender must refund all fees and finance charges within 20 days of receiving the cancellation notice.

Related Finance Terms

  • Cooling-Off Rule: A rule that gives consumers the right to cancel a contract within a certain time period.
  • Truth in Lending Act (TILA): A Federal law designed to protect consumers in their dealings with lenders and creditors.
  • Home Equity Loan: A type of loan in which the borrower uses the equity of his or her home as collateral.
  • Refinancing: Replacing an existing debt obligation with a new one under different terms.
  • Three-Day Rescission Period: A provision in the Truth in Lending Act that allows a borrower to cancel a home equity loan or line of credit with a new lender, or to cancel a refinance transaction done with another lender other than the current mortgagee, within three days of closing.

Sources for More Information

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More