Three-Day Cancellation Rule: What It Is, How It Works

The three-day cancellation rule also called the right of rescission is a federal protection under the Truth in Lending Act (TILA). It allows borrowers to cancel certain home financing agreements within three business days without penalty or explanation.

This rule applies when:

• The borrower’s primary residence is used as collateral
• The loan type is a home equity loan, HELOC, refinance with a different lender, or a reverse mortgage (specifically HECM)

Borrowers don’t need to justify their decision. As long as the cancellation is submitted within the three-day window, all fees including appraisal and title search costs must be refunded.

Federal law gives borrowers a brief window to reconsider certain mortgage agreements including reverse mortgages when their primary residence is used as collateral. This protection, known as the three-day cancellation rule or right of rescission, ensures borrowers can back out without penalty.

When Does the Clock Start?

The three-day countdown begins only after all three of the following occur:

• You sign the mortgage contract
• You receive the Truth in Lending Act (TILA) disclosure outlining loan terms like APR and payment schedule
• You receive two copies of the TILA notice explaining your right to rescind

If these steps happen on different days, the clock starts when the last of the three is completed.

How Long Do You Have?

• You have until midnight on the third business day to cancel.
• Sundays and legal public holidays don’t count, so deals signed on Fridays or near holidays may give you extra time.
• During this window, the lender cannot disburse funds or take action beyond accruing finance charges.

How to Cancel

• Sign the Notice of Right to Rescind and send it to your lender or closing agent.
• Alternatively, send a formal letter stating your intent to cancel.
• Always get proof of delivery and document when you received the required paperwork.

What Happens After Cancellation?

• The lender has 20 days to refund any fees you paid (e.g., application, appraisal, title search).
• They must also release their interest in your home as collateral.

Using your primary residence as collateral doesn’t automatically qualify your loan for the three-day cancellation rule. There are key exceptions where this right does not apply:

• You’re taking out a loan to buy or build your principal residence
• You’re refinancing with the same lender and not borrowing additional funds
• The lender is a state agency, not a private or federally regulated institution

These carve-outs are designed to streamline certain transactions and reflect different regulatory frameworks.

While the three-day cancellation rule offers important consumer protection, it can feel like a frustrating delay when funds are urgently needed. In such cases, borrowers may waive their right to rescind but only under specific conditions.

To do so, you must provide the lender with a signed and dated written statement that:

• Describes your bona fide personal financial emergency
• Clearly states your desire to waive the right to cancel the loan

This waiver must be voluntary and cannot be pre-filled or coerced by the lender. Once accepted, the lender may proceed with disbursing funds without waiting for the rescission period to expire.

The three-day cancellation rule also known as the right of rescission under the Truth in Lending Act (TILA) applies to specific types of home financing agreements when your primary residence is used as collateral. Here’s what it covers:

• Home Equity Loans
• Home Equity Lines of Credit (HELOCs)
• Refinancing an existing mortgage with a different lender
• Federally insured reverse mortgages, specifically Home Equity Conversion Mortgages (HECMs)

To qualify for a HELOC under this rule, the lender must be a private or federally regulated institution not a state agency.

Yes, borrowers can waive their three-day right of rescission but only under strict conditions. To do so, you must:

• Have a bona fide personal financial emergency (e.g., urgent medical expenses, foreclosure prevention)
• Provide the lender with a signed and dated written statement that: Describes the nature of the emergency and Clearly states your intent to waive the right to cancel the loan

This waiver must be voluntary and cannot be pre-filled or suggested by the lender. Once accepted, the lender may proceed with disbursing funds without waiting for the three-day cooling-off period to expire.

If the Truth in Lending Act (TILA) disclosure or the notice of your right to rescind is missing or inaccurate, your standard three-day cancellation window may be extended to up to three years from the closing date. This extended rescission period is a legal safeguard designed to protect borrowers from incomplete or misleading disclosures.

If you suspect this situation applies to you, it’s strongly recommended to consult a real estate or consumer protection attorney. They can help determine whether your rescission rights are still valid and guide you through the cancellation process.

To exercise your right to cancel a reverse mortgage or any qualifying home financing agreement within the federally protected three-day window:

• Sign and return the “Notice of My Right to Rescind” form provided by your lender
• If you didn’t receive the form, you can write a formal letter stating your intent to cancel
• Send the notice or letter to the lender’s designated business address
• Be sure to act within three business days of receiving the required disclosures and signing the contract
• Keep proof of delivery and document when you received the disclosures to protect your timeline

This process ensures your cancellation is legally recognized and that you’re refunded any fees paid.