The Quick Read: On a VA cash-out refinance in Maryland, the state taxes only the new money above your old unpaid principal. Page 2 of your Closing Disclosure usually splits the charges into a flat recording fee and a loan-amount-based tax. VA lets you pay these charges but does not exempt you from them. Your title agent calculates the numbers, and you can check them yourself.
Key Takeaways
- A Maryland refinance is exempt from recordation tax only up to the unpaid principal on the loan being paid off.
- The cash-out amount, any financed funding fee, and financed closing costs all land in the taxed layer.
- A charge based on loan size and a charge based on page count belong on different lines of the form.
- The exemption is claimed by affidavit. It is not automatic.
- Maryland is the worked example here because its tax follows the loan amount. The line-placement question applies in any state.
Maryland VA cash-out estimate
Seeded with an example value, a typical balance, and a round cash request at the first-use fee; change any field.
Editable benchmark: 7.40% as of October 15, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a VA cash-out refinance quote.
Illustrative starting assumptions: a $375,000 home value, a $206,000 current balance, the full-value VA cap with the first-use funding fee financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical rates for Maryland. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a VA cash-out refinance quote; a VA loan is priced by the lender at lock. The total loan, funding fee included, is capped at the program leverage on the reasonable value; the fee follows the tier chosen. The cash available is what the cap allows less the balances paid off and the fee, before closing costs, which are not included. The HELOC line is the line program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. The debt-to-income figure is a guideline; residual income decides a VA file. Licensed in sixteen states for consumer mortgages.
Why a VA Cash-Out Triggers a Recordation Charge
A cash-out refinance pays off your current loan and puts a new, larger lien on the home. That new lien is a deed of trust, and Maryland taxes the recording of it based on the debt it secures.
The refinance gets partial relief. The part of the new loan that only replaces your old balance is exempt. The part above it is treated as fresh debt and taxed.
Here is how the VA side fits. The VA cash-out refinance program lets you borrow up to 100% of the appraised value, including the financed funding fee. It also lets you refinance almost any existing loan type into a VA loan. A larger new-money layer means a larger taxable base. Equity that reaches farther also gets taxed farther.
The funding fee for a cash-out is 2.15% on first use and 3.3% on later use. It is waived for veterans receiving compensation for a service-connected disability and for the other exempt groups. If you finance the fee, it raises the new loan balance. That financed fee sits in the taxable layer, not the exempt one.
Key Terms Defined
Recordation tax: A Maryland tax on recording a deed of trust, based on the amount of debt it secures.
Transfer tax: A tax based on the price or loan amount of a transaction. Under the federal form rules, the name your state uses does not decide this. How the charge is calculated does.
Recording fee: A charge for filing a document, set by document type or page count. It does not move with your loan size.
Unpaid principal: What you still owe on the loan being paid off, before interest and fees. This is the exemption base, and it is smaller than your payoff figure.
Deed of trust: The document that secures your loan against the home. Maryland uses it in place of a mortgage in most files.
Original mortgagor: The borrower who took out the loan being refinanced. Maryland’s exemption is built around this person.
Residual income: What remains of your monthly income after taxes, housing costs, debts and a family-size living allowance. It is the controlling test on VA loans.
What Maryland Taxes, and What It Exempts
Maryland’s refinance exemption is in Tax-Property § 12-108(g). A new deed of trust is exempt to the extent it refinances an amount no greater than the unpaid principal balance of the existing loan. The Maryland State Bar Association’s recordation and transfer tax guide summarizes the statute.
Three pieces make up the taxable layer on a VA cash-out:
1. The cash you take out. This is new money by definition.
2. The financed funding fee. It is not principal on the old loan.
3. Financed closing costs. The same logic applies.
Howard County’s recorder guidance adds one detail that trips people up. Unpaid principal does not include interest or other costs. Your payoff letter shows a bigger number than your unpaid principal, because it includes interest accrued since your last payment. Use the principal figure for the exemption, not the payoff.
Two state-versus-county points matter too. The state transfer tax does not apply to mortgages and deeds of trust. County transfer taxes generally apply to deeds, not mortgages, though Prince George’s County is the commonly cited exception. Because the refinance exemption is not mirrored for county transfer taxes there, a Prince George’s owner may see a county charge that other counties do not have. Counties set their own rates, so check your county finance office for current figures.
A Modeled Example, in Percentages
These inputs are modeled assumptions, not market data. Say your home appraises at a value we will call 100%. You owe 60% of that value in unpaid principal. You take a VA cash-out for a base loan of 90% of value and finance the first-use funding fee of 2.15%.
| Step | Share of appraised value |
|---|---|
| Unpaid principal on old loan | 60% |
| Base new loan before fee | 90% |
| Financed funding fee (2.15% of base) | about 1.9% |
| New loan amount | about 92% |
| Exempt layer (old principal) | 60% |
| Taxable layer (new money) | about 32% |
The taxable layer is the new loan minus unpaid principal. The 32% includes your cash out, the fee and any financed costs. Your title agent applies the Maryland rate to that layer.
Notice what the example does not do. It does not tax the full 92%. It also does not exempt the whole refinance because it “replaces” a loan. Both are common assumptions, and both are wrong.
Anything financed also raises the balance, and so the monthly payment, by some amount. A cash-out that stops short of 100% of value leaves a little more room under the ceiling for those costs. That is a tradeoff worth weighing before you decide how much to take.
Which Closing Disclosure Line Does the Tax Sit On?
Recording charges are in Section E on page 2 of the Loan Estimate and the Closing Disclosure. Section E has two kinds of line: Recording Fees and Other Taxes first, Transfer Taxes second. The sorting test is how the charge is calculated, not what Maryland calls it.
The CFPB’s rule on the Loan Estimate says recording fees are assessed by document type or physical characteristics such as page count. Unlike transfer taxes, they do not depend on sale price or loan amount. The rule also says the name used under state or local law is not determinative. Its own example describes a fee set as a percentage of the loan amount and classifies it as a transfer tax, not a recording fee.
Maryland’s recordation tax on a deed of trust is computed on the debt secured. Under that test, it belongs on the Transfer Taxes line. The page-based charge for recording the deed of trust itself goes on the Recording Fees line. The form splits that line into “Deed” and “Mortgage” amounts.
| Section E line | What belongs there | What to check |
|---|---|---|
| Recording Fees (Deed / Mortgage) | Page-based filing charges | Amount is flat and small |
| Transfer Taxes | Loan-amount-based tax | Base is new money, not full loan |
| Extra line, if added | A second taxing entity | Label names the county or state |
Title agents sometimes add a separate line when more than one taxing entity applies. That is practitioner custom, not form text. A label that differs from this table is not automatically wrong, but ask why.
Why does the line matter? The CFPB’s guidance on recording charges says the sum of recording charges and certain other settlement services generally cannot rise more than 10 percent in total at closing. Transfer taxes are generally tested more strictly. Ask your title agent which tolerance bucket applies to your tax. A tax that moves between lines on your Closing Disclosure can change which test applies.
Where the Charge Fits in the VA Loan Steps
Think of the tax as one item inside a larger file. In order, a VA cash-out moves like this.
1. Eligibility. Your certificate of eligibility (COE) from VA decides whether you qualify. Service requirements are VA’s rules.
2. Credit. VA sets no minimum score. The wholesale programs Lendmire places VA loans with start at a 580 decision score, subject to lender guidelines.
3. Underwriting. Residual income is the controlling test. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
4. Loan conditions. A cash-out needs a net tangible benefit and seasoning, meaning the later of 210 days from the first payment and the sixth payment.
5. Appraisal. VA’s reasonable-value appraisal sets the ceiling, up to 100% of value including the financed fee.
6. Loan Estimate and Closing Disclosure. Government charges appear in Section E. The title agent calculates the Maryland tax.
7. Lender’s final check. The lender confirms every borrower-paid charge is on VA’s permitted list.
Step 7 is where the tax gets its legal footing. Under 38 CFR 36.4313, a veteran may pay recording fees and recording taxes or other charges incident to recordation. The lender certifies to VA that it charged nothing beyond what is permitted.
VA Circular 26-17-11 adds how it is documented. VA no longer accepts a separate itemized list, so lenders document allowable fees, plus any lender and seller credits, on the Closing Disclosure. The lender’s flat charge of up to 1% covers origination costs not itemized elsewhere. Recording taxes sit outside that 1% as itemized government charges.
Do not read “capped at 1%” as “all closing costs capped at 1%.” Third-party fees and government taxes are separate.
Where the General Rule Breaks
The rule “only new money is taxed” holds for a typical owner who refinances the loan they originally took out. These cases need a closer look.
Original mortgagor status. The exemption is built around the original mortgagor. The definition reaches a buyer who assumed the debt while paying recordation tax on the purchase price. It also reaches the settlor of a living trust. An owner who took the home by gift or inheritance should have the title agent confirm how the exemption applies.
Spouse added or removed. Cecil County’s guidance says a spouse added or removed still gets the refinance exemption, and only new money is taxable. The MSBA guide notes the family-transfer exemption covers instruments that transfer property, not a mortgage between spouses. Do not mix those up.
Revocable trust. Howard County’s guidance says a trustee refinance can qualify if the settlor is the principal-residence owner who originally incurred the debt.
Occupancy. Before 2013, the exemption covered only principal residences. It now reaches other property types too. VA cash-outs still require you to live in the home, so this matters less for you. Occupancy decides the leverage on a VA loan.
Interest rate reduction refinance. The IRRRL refinances an existing VA loan to a lower rate or from adjustable to fixed. It carries a 0.5% funding fee unless exempt and needs no VA appraisal. An IRRRL typically does not increase principal, so the exemption would generally cover the whole new loan. Confirm that with your title agent.
County quirks. Some counties want their own forms. Prince George’s uses a Finance Affidavit to claim exemptions from county transfer and state recordation taxes. Baltimore City publishes preferred affidavit wording and also requires an Affidavit of Refinancing Exemption.
Other states. Documentary stamps and mortgage taxes tax the loan in different ways. The Section E sorting test is the same everywhere. Only the tax itself changes.
A practitioner note: files with a financed funding fee and a trust on title are where the affidavit most often goes sideways. Across the wholesale programs Lendmire places VA files with, the clean files have the old payoff letter showing the unpaid principal, the title documents showing who the original mortgagor was, and the affidavit signed before the closing package is finalized.
The Affidavit Is Not Optional
The exemption is claimed, not granted. A refinance affidavit is required. The affidavit states you are the original mortgagor and gives the unpaid principal balance. A misstatement can void the exemption.
If the title agent skips the affidavit, you could see the whole new loan taxed. That is the most expensive error in this topic. Ask early whether the affidavit is in the package.
A Six-Step Self-Audit of Your Closing Disclosure
You do not need to be an accountant. You need six numbers.
1. Find the unpaid principal on your old loan, not the payoff figure. Your lender’s payoff letter usually separates the two.
2. Find your total new loan amount on page 1 of the Closing Disclosure.
3. Subtract unpaid principal from the new loan. That is your taxable layer.
4. Confirm the Transfer Taxes line in Section E reflects that layer, not the full loan.
5. Confirm the Recording Fees line shows only page-based filing charges.
6. Ask for the signed refinance affidavit and your county’s form, if it has one.
If steps 3 and 4 disagree by a lot, ask the title agent to show the math in writing. Honest mistakes happen. Fix them before you sign, not after.
What the Decision Looks Like in Practice
The question is rarely “do I pay the tax?” It is “how much new money do I need?” Each extra point of cash-out equity adds to the taxable layer, and a financed funding fee adds to it too. A veteran who qualifies for the funding fee waiver has a smaller taxable layer than one who does not.
Compare that with keeping your current loan. If your goal is a lower rate or an adjustable-to-fixed switch, an IRRRL may fit better. If you need equity, the cash-out is the tool, and the tax is part of its cost. Lendmire’s piece How Much a VA Cash-Out Nets After the Funding Fee and Closing Costs walks through that tradeoff.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Maryland is the teaching example in this piece. Lendmire arranges consumer loans in 16 states, so confirm your state is covered. Every parameter above is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Frequently Asked Questions
Is a VA loan exempt from Maryland recordation tax?
No. VA rules allow the veteran to pay recording taxes, and they do not excuse you from them. The refinance exemption comes from Maryland law and is limited to the unpaid principal of the loan you are replacing.
Is the cash-out portion taxed as new debt?
Yes. Anything above your old unpaid principal is taxed at the standard rate. That includes your cash out, a financed funding fee and financed closing costs. Only the portion that replaces your old balance is exempt.
Which Closing Disclosure line shows the recordation tax?
Section E on page 2. Under the federal sorting test, a charge based on loan amount belongs on the Transfer Taxes line, and page-based filing charges go on Recording Fees. Title agents sometimes add a separate line for another taxing entity, so ask for a short explanation of each line.
Does my payoff amount set the exemption?
No. The exemption base is unpaid principal, which excludes interest and other costs. Your payoff figure includes accrued interest, so it runs higher. Using it would overstate the exempt layer, so check the principal figure against your lender’s statement.
Does the exemption cover county transfer tax too?
Generally county transfer tax applies to deeds, not mortgages, so most refinances do not trigger it. Prince George’s County is the commonly cited exception, and the state exemption does not carry over there. Confirm with your county finance office.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see VA loan programs.
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References
1. CFPB, 12 CFR 1026.37 Content of disclosures for certain mortgage transactions
2. CFPB: What are government recording charges for a mortgage?
3. eCFR, 38 CFR 36.4313 Charges and fees
This article is part of Lendmire’s VA Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Can a Veteran Use VA Cash-Out Money for a Remodel? · How to Get a VA Cash-Out on a Home Still in the Estate · Can a Veteran Get a VA Cash-Out in an Irrevocable Trust?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.