What happens to a loan if a borrower exercises their right to rescission?

When a borrower exercises their right to rescission, which is a right granted under the Truth in Lending Act, all funds must be returned to the lender. This right is typically applicable in certain types of loans, such as home equity loans or refinances of primary residences, allowing the borrower to cancel the loan within a specified period, usually three business days after closing.

If a borrower decides to rescind, they must return any money received from the lender. This means that any advances received, such as initial funds disbursed, must be repaid. The requirement to return all funds emphasizes the borrower's right to back out of a transaction if they feel the terms were not adequately disclosed or if they have changed their mind about the transaction.

In contrast, leaving the loan active, suspending future payments, or reducing the loan amount would not align with the legal requirements and financial implications tied to the right of rescission. The act is a protective measure that ensures borrowers can retrace their steps in certain credit transactions, thus reinforcing their rights in the lending process.