Right Of Rescission

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DEFINITION of 'Right Of Rescission'

A right under federal law set forth by the Truth in Lending Act that gives a borrower the right 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. The right is provided on a no-questions-asked basis, and the lender must give up its claim to the property and refund all fees within 20 days of exercising of the right of rescission.

BREAKING DOWN 'Right Of Rescission'

The right of rescission was created to protect consumers from unscrupulous lenders, and to give borrowers a cooling off period and the time to change their minds. Not all mortgage transactions have the right of rescission. The right of rescission exists only on home-equity loans, home-equity lines of credit and refinances of existing mortgages in which the refinancing is done with a lender other than the current mortgagee. The right of rescission does not exist on a mortgage for the purchase of a home, a refinance transaction with the existing lender, a state agency mortgage, and a mortgage on a second home or investment property.

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