Which of the following is a rescindable transaction?

Which of the following is a rescindable transaction?

• A. A small business loan secured by the borrower's personal residence
• B. A borrower with a mortgage refinances to increase the loan amount secured by their primary dwelling
• C. A home improvement loan secured by a vacation condo
• D. A dentist acquires a loan secured by a second mortgage on his home

Answer: (B)

The correct choice highlights a situation that falls under the provisions for loan rescission as outlined in Regulation Z. In the context of Truth in Lending, rescindable transactions typically involve loans that are secured by a borrower's principal dwelling, as this is where the regulation affords consumers the right to cancel under certain conditions. When a borrower refinances an existing mortgage to increase the loan amount secured by their primary dwelling, they are essentially taking out a new loan that is secured by that same primary residence. This transaction allows the borrower the opportunity to cancel the loan within three business days after the loan closes. This right to rescind is particularly aimed at protecting consumers when their primary dwelling is collateral for a loan, giving them a safeguard against potential harm from high-pressure sales tactics or unfavorable terms. The other options do not meet the criteria for rescindable transactions as defined under Regulation Z. For instance, a small business loan secured by a personal residence (first choice) does not qualify because it pertains to business use rather than personal use of the home. Similarly, a home improvement loan secured by a vacation condo (third choice) is not a primary residence, and thus, does not provide rescission rights. Lastly, the fourth option involving a dentist obtaining a second mortgage

The correct choice highlights a situation that falls under the provisions for loan rescission as outlined in Regulation Z. In the context of Truth in Lending, rescindable transactions typically involve loans that are secured by a borrower's principal dwelling, as this is where the regulation affords consumers the right to cancel under certain conditions.

When a borrower refinances an existing mortgage to increase the loan amount secured by their primary dwelling, they are essentially taking out a new loan that is secured by that same primary residence. This transaction allows the borrower the opportunity to cancel the loan within three business days after the loan closes. This right to rescind is particularly aimed at protecting consumers when their primary dwelling is collateral for a loan, giving them a safeguard against potential harm from high-pressure sales tactics or unfavorable terms.

The other options do not meet the criteria for rescindable transactions as defined under Regulation Z. For instance, a small business loan secured by a personal residence (first choice) does not qualify because it pertains to business use rather than personal use of the home. Similarly, a home improvement loan secured by a vacation condo (third choice) is not a primary residence, and thus, does not provide rescission rights. Lastly, the fourth option involving a dentist obtaining a second mortgage