Right of Rescission

An explanation of the “3-day Hold Period” on Refinance mortgages

On refinance mortgages, different than purchase transactions, there is a 3 day “hold” period known as “Right of Rescission”.  This is not a new legislation, but rather was introduced many years ago when “home improvement” loans were rampant, and contractors were going door to door offering “no out of pocket” home improvement projects which turned out to be very expensive 2^nd mortgage loan scams.
The “right of rescission” period is a provision under the “Truth in Lending” law that essentially gives homeowners who are refinancing their home a chance to examine closing documents and will have the right to rescind for a period of three business days.  The rescission period begins the day after loan documents are signed, and ends three business days later, including Saturdays, but not Sundays or holidays.  On midnight on the third business day the rescission period is over, and signed documents become “official”.
Once the loan is official, the parties proceed with the new mortgage and the title company will act to pay off the existing mortgage/liens (if applicable). No funds will be exchanged during the rescission period, and the new loan will not start until after the rescission period is over.  This is important for those people who haven’t yet paid their previous months mortgage. The interest that is due and expected for the previous months payment will be added to the payoff statement and billed by your current bank.

Homeowners who assume that their loan will be paid off prior to the “due date” should take into consideration these extra 3 days and make sure they realize when the payoff funds will actually hit the bank. Additionally, for mortgages that exceed the “grace period” offered by the current bank, a late fee will be assessed as part of the funds needed to payoff the loan in full.