PHILADELPHIA -- You've applied to refinance your home mortgage, but you're having second thoughts. Maybe interest rates have floated too high, or you've decided to move instead. You may be able to back out of the process, and get all or most of your money back.
Many lenders say they will work with applicants who get cold feet to agree on what happens to any fees or other payments.
lTC "We're anxious to do right by our customers, and if the market has changed significantly since they applied, then we'd proceed to negotiate," said Linda Klein, regional vice president of Countrywide Funding Corp., a national lender with offices in suburban Huntingdon Valley, Pa.
But until you actually close on the loan, the law does not give you a great deal of leverage. Understandably, lenders may balk at giving back fees that are labeled "non-refundable," or money that's been paid to a third party such as an appraiser.
That can change after closing, however. Under certain circumstances, federal law then gives you three days to back out of the deal and get all of your money back, said Carole Reynolds, senior adviser with the Division of Credit Practices at the Federal Trade Commission. The process is governed by Regulation Z, which was drafted by the Federal Reserve to implement the federal Truth in Lending Act.
This three-day "right of rescission," or cancellation, is not available to all home-mortgage borrowers, however. It does not apply to a person who is borrowing to buy or build a house.
Nor can it be used by a person who has gone back to his or her previous lender to refinance for just the balance remaining on the previous mortgage or the balance plus closing costs, Ms. Reynolds said.
It also is not available if you are getting a mortgage from a state agency.
The right of rescission is available to a person who refinances with a new lender. It also can be used by someone who goes back to the old lender to take out a new mortgage loan to pay off the old home loan and to borrow additional money.
It also is generally available to borrowers with home-equity loans or second mortgages. In those circumstances, Ms. Reynolds said, you should get all of your money back -- even "non-refundable" fees and any money spent on third-party services, such as credit checks or title searches.
Not everyone agrees that everything must be refunded, said Thomas M. Fewer, vice president of lending at suburban Willow Grove Federal Savings. He said Willow Grove will refund everything, but other lenders interpret the law differently.
"It's the law, but it becomes what is your attorney's opinion," he said.
To rescind a mortgage, you must notify the lender in writing and you must act before midnight on the third business day after the loan closes. Saturdays count as business days. Sundays and holidays do not.
Ms. Reynolds suggested that you keep a photocopy of your rescission letter and that you send it by certified mail, return receipt requested.
If you use the mail, the notification doesn't have to get to the lender by midnight of the third business day, but must be postmarked by that time, said Philip Farley, manager of regulations assistance at the Federal Reserve Bank of Philadelphia.
To avoid confusion that might be caused by a delay in the mail, many lenders ask a borrower to come in after the rescission period ends to sign documents stating that he or she is not rescinding the loan.
Obviously, lenders aren't eager to go through all the work and expense of processing a mortgage loan only to have a borrower rescind it.
"If a lender knows that an individual will cancel," Mr. Farley said, "they will try to head him off by making him whole and keeping him happy. It's just common sense if you're in the lending business."
Perhaps as a result, borrowers don't use the right of rescission very often.
Edward Albright, vice president of Germantown Savings Bank in Philadelphia and president of the Pennsylvania Mortgage Bankers Association, said that only one customer has ever rescinded a mortgage. If an applicant has changed his or her mind, the bank tries to be "flexible but reasonable," but it won't refund money it has spent on appraisals and credit checks.
Mr. Fewer, of Willow Grove Federal, said it is not uncommon for people to back out of refinancing. But customers usually do it earlier in the process, when they are asked to lock in a rate. At that point, the bank will not refund the application fee, which is used to pay for the appraisal and credit check.
The Federal Trade Commission offers two free publications on refinancing a home loan: "Getting a Loan: Your Home as Security" and "Refinancing Your Home." To order, write to: Federal Trade Commission, Division of Credit Practices, Washington, D.C. 20580.