What is the right of rescission?

To rescind a contract is to cancel it and put both sides back where they started. You hand back what you received, and the other side returns what you paid. That is different from ending a contract early under its own terms, where the deal runs until the end date and you may owe something for leaving. A right of rescission undoes the deal itself.

Most contracts carry no such right. You get one only when a law or the contract itself gives it to you. Two federal rules matter most to consumers. The first covers credit secured by your home. The second, the FTC Cooling-Off Rule, covers certain sales made at your door or away from the seller's regular place of business. This guide explains both, with most of the detail on the first.

For this rule a business day means every calendar day except Sundays and federal legal public holidays, so Saturdays count. A common case is a home equity loan or line of credit taken on a home you already own. Lenders must give you a notice that explains the right and includes a form you can use to rescind. The CFPB's Regulation Z rule on open-end credit (section 1026.15) spells out the same right for a home equity line, while section 1026.23 covers closed-end loans such as a one-time home equity or refinancing loan.

The clock starts only when all three events have happened. If the lender hands over the disclosures a week after closing, your three business days start then.

In practice, if you rescind within the window the lender cannot fund the loan or must give back what it took. Do not let anyone talk you out of the written notice. A phone call or a conversation with a loan officer does not replace it.

The statute lists transactions where there is no right of rescission. The main ones are these.

• A residential mortgage transaction, which is a loan used to buy or build your home. If you borrow to buy a house, there is no three-day rescission right on that loan.
• A refinancing or consolidation by the same lender that already holds your loan, to the extent it does not add new money beyond the unpaid balance. If the lender advances new money, the right applies to that new amount.
• A transaction in which a state agency is the creditor.
• Further advances under an existing open-end credit plan, where the lender's security interest in your home was already in place and you already had the chance to rescind.

You can also waive the right in a genuine personal financial emergency, by a signed statement you write yourself that describes the emergency. Lenders cannot hand you a pre-printed waiver as part of the paperwork. The rule also covers only your principal home. A second home or an investment property is outside it.

The other federal right of rescission appears in the FTC Cooling-Off Rule. It gives you three business days to cancel certain sales made at your home or at a temporary location such as a hotel room or convention center. It is a separate rule with its own exclusions, forms and refund deadline. Our guide on what a cooling-off period is walks through it, and a timeshare contract may add a longer window, covered in how to cancel a timeshare.

1. 1

   Find the deadline

   Check the notice of right to rescind that came with your loan papers. It states the date and time your right ends. If you did not receive one, the three-year outer limit may apply.

2. 2

   Write the notice

   Use the form the lender gave you, or write your own: name the loan or account number, say you are rescinding, sign and date it.

3. 3

   Send it before the deadline and keep proof

   Mail counts when you post it, so send it by a method that records the date. Our guide to certified mail for cancellations explains which records prove what.

4. 4

   Track the 20 days

   Note the date the lender received your notice. If your money has not come back and the lien has not been released after 20 days, write again and keep copies of everything.

State laws and your contract may add rights beyond these federal rules, and this guide covers only the federal ones. For subscriptions that renew on their own, a different set of rules applies, covered in automatic renewal laws by state.