Florida Broker Practice Exam

To which type of loans does the three-day right of rescission apply?

1. First mortgages

2. Home equity lines of credit

3. Commercial loans

4. Construction loans

The correct answer is: Home equity lines of credit

The three-day right of rescission typically applies to home equity lines of credit because these types of loans are considered to involve refinancing or the securing of additional credit against the borrower's home equity. Under the Truth in Lending Act (TILA), consumers have the right to cancel certain types of credit transactions within three days of closing, allowing them to reconsider the decision and ensure they fully understand the terms involved. This consumer protection feature is specifically designed to protect consumers in situations where their primary residence serves as collateral, which is inherent in home equity lines of credit. In contrast, first mortgages may not always have the same rescission rights, particularly if they are used to purchase a home (rather than tapping into equity). Commercial loans and construction loans generally do not fall under the same consumer protection umbrella, as they are designed for business purposes or property development, where different regulations and practices apply. Hence, the right of rescission is primarily associated with home equity lines of credit.