Understanding the 3-Day Rescission Rule: Your Right to Cancel
The "3-day rescission rule," formally known as the Right of Rescission under the Truth in Lending Act (TILA) and its implementing Regulation Z, is a crucial consumer protection mechanism. It grants borrowers a limited window to cancel certain types of credit transactions without penalty, ensuring they have adequate time to reconsider significant financial commitments.
What is the Right of Rescission?
This rule allows consumers to cancel a credit transaction that involves a lien on their primary residence. It's designed to protect homeowners from hasty decisions, particularly in situations where they might be pressured into a loan agreement.
Which Transactions Are Covered?
The right of rescission typically applies to:
- Home Equity Loans: Loans secured by the equity in your home.
- Refinances: Refinancing an existing mortgage with a new lender, or even with the same lender if certain conditions are met (e.g., increasing the loan amount).
- Second Mortgages: Loans taken out in addition to your primary mortgage, using your home as collateral.
- Home Equity Lines of Credit (HELOCs): Revolving credit lines secured by your home.
Important Exclusions: The right of rescission generally does not apply to:
- Purchase Money Mortgages: Loans used to buy your primary residence.
- Refinances with the original lender: If the new loan is a refinance of the same principal amount by the same lender, with no new money advanced.
- Loans for investment properties or secondary residences.
When Does the 3-Day Clock Start?
The rescission period begins at midnight on the day *after* all three of the following events have occurred:
- The consumer signs the credit contract (e.g., loan agreement).
- The consumer receives the Truth in Lending disclosure statement, which details the loan terms, annual percentage rate (APR), finance charges, and payment schedule.
- The consumer receives two copies of the Notice of Right to Rescind, which explains their right to cancel and how to do so.
If any of these conditions are not met, or if the disclosures are inaccurate, the rescission period can be extended, sometimes for up to three years.
What is a "Business Day"?
For the purpose of the 3-day rescission rule, a "business day" is defined as any day except Sunday and federal public holidays. Saturdays are generally considered business days under this rule. For this calculator, we follow the federal definition: Monday through Saturday, excluding federal holidays.
How to Exercise Your Right to Rescind
To cancel the transaction, you must notify the creditor in writing within the rescission period. This notice should be sent to the address provided in the Notice of Right to Rescind. It's highly recommended to send the notice by certified mail with a return receipt requested, to have proof of delivery and the date it was sent.
What Happens After Rescission?
Once you properly rescind, the security interest in your home becomes void, and the creditor must return any money or property you paid (e.g., application fees, closing costs) within 20 calendar days. You then have a reasonable period to return any money or property the creditor advanced to you.
Use the Calculator to Determine Your Deadline
Use the calculator below to quickly determine your 3-day rescission deadline based on the date all conditions were met. Remember, this calculator provides an estimate based on federal guidelines and common federal holidays. Always verify with your lender or legal counsel for precise dates and specific state regulations.
3-Day Rescission Deadline Calculator
Your rescission deadline will appear here.