Florida Broker Practice Exam

Which loan type does the three-day right of rescission not apply to?

1. Home equity loans

2. Second mortgages

3. First mortgages

4. Refinance loans

The correct answer is: First mortgages

The three-day right of rescission is a consumer protection provision under the Truth in Lending Act that allows borrowers to cancel certain types of loans within three days of closing if the loan is secured by their primary residence. This right is specifically designed to provide homeowners with the opportunity to reconsider the commitment they have made, allowing for a cooling-off period. First mortgages are generally used to purchase a property or to secure a large loan amount based on the value of the property. These transactions typically do not provide the borrower with the option to rescind the loan within three days, because they involve the purchase of the home itself, making them fundamentally different from loans such as home equity loans, second mortgages, or refinance loans, which are typically seen as a draw against the home’s equity and can involve changes to the existing loan structure. Understanding this distinction is crucial for any real estate professional, as it informs them about borrower rights and helps them guide clients through the process of taking out loans against their property.