Canceling a Mortgage
The Truth in Lending law (Federal Regulation Z) gives you a chance to change your mind on one important kind of transaction: When you use your home as security for a credit transaction. For example, when you are financing a major repair or remodeling and use your home as security, you have three business days, usually after you sign a contract, to think about the transaction and to cancel it if you wish.
The creditor must give you written notice of your right to cancel, and, if you decide to cancel, you must notify the creditor in writing within the three-day period. The creditor must then return all fees paid and cancel the security interest in your home.
No contractor may start work on your home, and no lender may pay you or the contractor until the three days are up. If you must have the credit immediately to meet a financial emergency, you may give up your right to cancel by providing a written explanation of the circumstances.
The right to cancel (or right of rescission) was provided to protect you against decisions made in haste, or under pressure, that might put your home at risk if you are unable to repay the loan. The law does not apply to a mortgage to finance the purchase of your home. For purchase transactions you commit yourself as soon as you sign the mortgage contract.
And, if you use your home to secure an open-end credit line -- a home equity line, for instance -- you have the right to cancel when you open the account or when your security interest or credit limit is increased. (In the case of an increase, only the increase would be canceled.)