You signed on the dotted line and now you are having second thoughts. Can you back out of the mortgage or are you on the hook for the term of the loan?
It depends on the type of loan you took. If you are talking about a purchase loan – you are stuck. You can’t back out of a purchase loan once you close on it. Your only wait out is to sell the home and pay the loan off in full. Because of the cost of closing on a loan, it’s probably not the best idea to turn around and sell the home right away. Instead, you have to make the best of it, making your payments on time and figuring out your next step.
If you refinanced your loan, though, it’s a completely different story.
The Right of Rescission
When you refinance your mortgage, by law you get what they call the ‘3 Day Right of Rescission, ‘this means that you have three days to change your mind. We should clarify that it means three business days after the date of the closing.
For example, if you close on Monday. You have until 11:59 PM to cancel your loan on Thursday. If Friday morning rolls around and you did not rescind, you keep the loan and homeownership.
Now, if you closed on Thursday, you would have until Monday at 11:59PM to cancel your loan. This gives you a little more time because it’s three business days (including Saturday). If there is a bank holiday in there, it doesn’t count as a business day either.
Exercising Your Right to Cancel
So what happens if you decide that you do want to cancel your refinance? You have to do the request in writing. Make sure you talk to your lender about the way they would like to receive the cancelation. In some cases, they want a verbal warning from you along with a written letter. In other cases, the lender has a specific form you must complete and send in to them. They will provide you with this form at the closing, so keep it handy in case you change your mind.
Canceling a Purchase Loan
While we said that it’s impossible to cancel a purchase loan, there is a way, it’s just not easy. You’ll likely find yourself in legal trouble as a result of canceling it. If you have a plausible reason for it, you may be able to get away with it, but the seller may still have legal recourse.
If something drastic happened, such as you lost your job or you found a major defect with the home that was overlooked, you may be able to back out, but it will still be messy. Using generic excuses won’t fly and could land you in court.
In reality, the only way to cancel a mortgage after closing is if you refinanced. If you bought a home and borrowed money to do so, it’s your loan for the term or until you pay it off by selling the home. That’s why it’s important to take your time when buying a home in order to figure out if it’s the right choice for you.