You can’t change your mind when you buy a home. There is no right of rescission. However, when you refinance, even with the VA streamline program, you have the option to change your mind.
Let’s take a look at what this means and when you should consider it.
What is the Right of Rescission?
The right of rescission gives you the option to essentially back out of your refinance. Let’s say you think interest rates are really low and you stand to save a lot of money. You apply for the VA IRRRL loan. You even close on it rather quickly.
As you go through your loan documents after the closing, though, you decide that the savings weren’t as great as you thought. You want to cancel the loan. As long as you make this decision within three business days of the closing, you have that option.
When is the Right of Rescission Period?
Your right of rescission begins the very next business day. If you closed on Tuesday, your rescission period begins on Wednesday. You then have three business days from that point. In this case, this means Wednesday, Thursday, and Friday. You have until midnight on Friday to change your mind. If you do not rescind within that time, your loan will fund on Monday, and you can’t turn back.
In rare cases, you may have up to 3 years to rescind your loan. However, this only happens if you are not provided with a Truth-in-Lending or a notice of your Right to Rescind at the closing.
When Should You Consider Rescinding Your Refinance?
Now, the bigger question is when you should consider rescinding your refinance. You went through all of the work of refinancing your loan, why change now? Here are a few reasons:
- Your circumstances changed and you will not be staying in the home. If you suddenly have to move, paying closing costs for a lower interest rate may not make sense. Rescinding the loan and keeping your original loan may make more sense.
- It wasn’t as good of a deal as you thought. Sometimes the grass seems greener on the other side until you see the documents. You might think you are overpaying on your current mortgage. A lower rate just sounds better so you go for it. After reading your loan documents, though, you realize you are not saving as much as you thought. Rescinding might be the best idea.
- Your terms are not as they were promised. The mortgage industry does a very good job at making sure lenders are honest with their customers, but some can slip through the cracks. Make sure you compare your closing documents to your Loan Estimate to make sure you got the deal you were promised.
Who Can’t Use the Right of Rescission?
Generally, any borrower with the VA IRRRL can exercise their right to cancel their loan. Overall, borrowers who refinance a home other than an owner-occupied home can’t use this right. This is a grey area with the VA IRRRL program. Technically, you are supposed to live in the home. But, some borrowers use the program to lower their payment because they have to relocate. If the lender knows you will not occupy the property, you might not be able to rescind.
The only other reason a borrower wouldn’t be able to rescind is when they use the same lender. The law assumes that lenders would not use any tactics that would harm a current customer. The law is mainly for borrowers who take out a loan with an unfamiliar lender.
How to Rescind your Refinance Loan
If you do decide to exercise your right to rescind, you must do it in writing. Most lenders provide a form in your closing documents for you. If you want to use it, complete the form and get it to your lender before midnight of the last day. Mailing it may not be the best option as you are at the mercy of the post office.
If you do not have a form, you can write your request in a letter. Make sure you date and sign the letter. Also, make sure it is in the lender’s hands before that midnight deadline on the third business day.
It is best to ask your closing agent the exact day and time your right to rescind ends to make sure everyone is on the same page.
Should you exercise your right of rescission? It is a personal decision. In order to avoid this confusion, make sure you know all of the details of your VA streamline refinance. The goal of the program is to provide you with a lower payment. Chances are, you are not being taken advantage of, but you can’t be too sure.
After the closing, carefully review all documents. Make sure the fees are what you anticipated. Also, make sure the rate and terms match what you were promised. You have 3 business days to make sure you are happy with the new loan. After that point, it is yours to pay for the next 15-30 years.