The Quick Read: In Montgomery County, Maryland, recordation tax lands on the new money in a cash-out, not on the whole new loan, when the borrower qualifies for the refinance exemption. The exemption shields the balance you already owe. Anything above that payoff, including financed closing costs and the cash you take out, forms the taxable base. Exactly how much that adds depends on how large the increase is and whether you are an “original mortgagor.”.
Montgomery County, Maryland is a worked example of a wider mechanic: some local taxes are priced off the loan amount, and they differ by jurisdiction. If you are refinancing elsewhere, the questions below still apply. Only the rates change.
Key Takeaways
- Recordation tax is based on the principal secured by the new mortgage, and a refinance exemption removes the part that merely replaces your old balance.
- The taxable base on a cash-out is generally the increase in principal, which includes any closing costs you finance.
- Montgomery County stacks a base layer, a school layer and a premium that steps up on larger amounts.
- Whether you qualify as the “original mortgagor,” and whether the sworn statement is correct, can matter as much as loan size.
- A “no-cost” refinance does not remove government taxes. The cost moves into the balance or the pricing.
Which Montgomery County, and What Is Recordation Tax?
Maryland’s recordation tax applies to documents recorded in the land records, including mortgages and deeds of trust. It is measured by the principal amount of debt the document secures. It is not a flat recording fee. It is also not the same as transfer tax, which the county charges on sales and which does not belong in a refinance example.
The name causes confusion. Several states have a Montgomery County, and each has its own rules. Everything here is about Maryland.
Across the wholesale programs Lendmire places files with, a Maryland cash-out is underwritten like any other conventional cash-out. The lender sizes the loan off appraised value. Recordation tax sits in the closing costs, outside the loan approval itself. That split is why borrowers often notice it late. It is a government charge that scales with new principal, and your lender does not set it.
If you are comparing cash-out refinance programs, the leverage limits and seasoning rules come first. The recordation line then tells you what the cash will really cost.
How Does the County Price the Tax?
The county’s tax has three layers. The Montgomery County Department of Finance’s Bill 17-23 page lists a base layer, a school layer and a premium that starts above $500,000. After the county’s most recent rate change, the premium has four tiers that begin at $500,000, $600,000, $750,000 and $1,000,000.
Adding the layers together gives these approximate combined marginal rates:
| Slice of taxable principal | Approximate combined rate |
|---|---|
| Up to $500,000 | 0.89% |
| $500,000 to $600,000 | 1.35% |
| $600,000 to $750,000 | 2.04% |
| $750,000 to $1,000,000 | 2.16% |
| Above $1,000,000 | 2.27% |
The county computes the tax per $500 of principal, or fraction thereof. Partial units round up. The date the county receives the document decides which rates apply. Some older county service pages still show earlier rates, so use the Bill 17-23 page as the current reference.
These are the county’s figures. They are not a quote for your file, and your settlement agent will compute the exact amount.
What the Refinance Exemption Does
The exemption is why a refinance usually costs far less than a purchase. Under Maryland’s recordation tax statute, Tax-Property §12-108, a new mortgage is not taxed to the extent it refinances an amount no greater than the unpaid principal on the existing loan. The relief applies only up to the balance you owe at the time of refinance. It does not apply to the original loan amount.
Two conditions matter in practice:
1. The original mortgagor. The exemption is written for the person who took out the existing loan, alone or with a spouse. A borrower who acquired the home another way, such as by inheritance or by deed from a relative, may not qualify. A settlement attorney or title company should confirm those cases.
2. A sworn statement. The new security instrument carries a statement from the signer. It says the signer is the original mortgagor and gives the unpaid principal balance. Some counties also ask for their own affidavit form.
The county’s council materials describe the same outcome. On a refinance, the tax applies to the part of the new principal that exceeds what remained on the original debt.
Some web pages say the whole new loan is taxed. Others say only the cash-out is taxed. Read the statute logic closely. The exemption covers principal up to the payoff, and everything above it is taxed, including financed costs. That is not the same as “cash-out only.” If a title company quotes something different, ask it to show the computation.
How a Cash-Out Is Underwritten, Step by Step
The recordation figure falls out of the same numbers that drive the loan. Here is the sequence.
1. Classify the loan. A refinance that pays off the first mortgage, with only incidental cash back, is a rate-and-term or limited cash-out loan. Anything beyond that is a cash-out. Fannie Mae’s Selling Guide on cash-out refinances sets the eligibility framework.
2. Check seasoning. The first mortgage being paid off must be at least 12 months old, counted from note date to note date. A borrower generally needs to have been on title for 6 months. Delayed financing, inheritance and legal-award exceptions exist.
3. Size off appraised value. A conventional cash-out reaches 80% of value on a one-unit principal residence. It reaches 75% on two- to four-unit principal residences, second homes and investment property. Occupancy decides the leverage. A wholesale lane reaches 89.99% with no mortgage insurance on a thirty-year fixed, primary residence, conforming balance, at a 680 score and a 50% ratio, with its own six months of seasoning. All of this is subject to lender guidelines and full file review.
4. Set the new principal. The new loan equals the payoff, plus any liens being cleared, plus financed closing costs, plus the cash out.
5. Find the taxable increase. New principal minus the payoff balance is the figure that drives recordation. This is a general reading of how the formula works. The county page does not spell it out.
6. Sign and record. The sworn statement goes on the new mortgage. The county’s Finance Department processes recordable documents electronically. Your settlement agent collects the tax at closing.
Four things decide the outcome: payoff versus new principal, original-mortgagor status, a correct affidavit and how much you finance.
Worked Scenarios, Without the Dollar Signs
The arithmetic is simpler in percentages. These are illustrations of mechanics, not quotes.
Scenario one: a small increase. A homeowner finances closing costs and takes no cash. The new principal runs a few percent above the payoff. The taxable base is only that sliver. It sits well inside the lowest bracket, so the added tax is modest.
Scenario two: a real cash-out. The existing balance is about half of the home’s value. The homeowner refinances to 80% of value. The taxable base is roughly 30% of value, plus anything financed on top. For many homes that increase stays under the $500,000 line, so the lowest layer does most of the work.
Scenario three: no exemption. The borrower inherited the home and is not an original mortgagor. The exemption may not apply. The taxable base could then be the whole new loan, and the higher premium tiers become relevant.
Scenario three is the pattern to watch. Two borrowers with the same loan amount can owe very different amounts, depending on payoff balance and status.
One open question is worth asking your title company. How are the premium tiers measured against the taxable increase, and not against the whole loan? The county page does not say, so get the computation in writing.
Cash-Out, Rate-and-Term and Streamlines Compared
Recordation exposure follows how much new money the loan contains.
| Loan type | New principal vs. payoff | Likely recordation effect |
|---|---|---|
| Conventional cash-out | Payoff plus cash and costs | Largest taxable increase |
| Rate-and-term (limited cash-out) | Payoff plus costs, little cash | Small taxable increase |
| FHA Streamline | Payoff only | Usually minimal |
| VA IRRRL | Payoff, existing VA loan | Usually minimal |
The rate-and-term lane reaches 95% LTV on a one-unit principal residence, with mortgage insurance above 80%. That insurance cancels on request at 80% and ends automatically at 78%, subject to the program’s conditions. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
The HUD Streamline program is built for existing FHA loans. It limits cash back to a nominal amount and does not allow closing costs in the new loan. It requires a net tangible benefit. With so little new principal, the taxable increase is usually small. That is an inference from the program design, not a county statement.
The VA IRRRL works the same way for existing VA loans. It carries a 0.5% funding fee unless the borrower is exempt, and no VA appraisal. Streamlines give you no cash. If cash is the goal, recordation on the increase is part of the price of getting it.
Where the General Rule Breaks
The exemption story has a few named exceptions.
- Not an original mortgagor. Covered above. Inheritance and deed transfers are the usual triggers.
- Second homes and investment property. The exemption was historically tied to principal residences, and later legislation widened it. Occupancy also changes the cash-out leverage, which is 75% outside a one-unit principal residence. Confirm the current wording with your settlement agent.
- The buyer’s exemption. A county exemption exists for individuals buying a principal residence. It is described for buyers, not refinancers. Refinance relief comes from the state statute.
- County transfer tax. It applies to sales. Do not add it to a refinance estimate.
- Amended instruments. If the original security instrument stays of record and is amended, the statute taxes only new consideration or increased principal. The usual refinance replaces the lien, so this path is rare.
- Texas homesteads. A cash-out on a Texas homestead is capped by the state constitution, and the wholesale lane described above is not written there. That is a leverage rule, not a recordation rule.
How It Shows Up on Your Disclosures
Federal disclosure rules sort fees by how they are measured. Under the CFPB’s Regulation Z §1026.37, fees assessed by loan amount or sale price are classed as transfer taxes on the Loan Estimate. That holds whatever state law calls them. True recording fees depend on document type or page count.
So a loan-amount-based recordation tax is generally disclosed as a transfer tax, not as a recording fee. This follows from the rule text. Transfer taxes are generally subject to a zero-tolerance limit on increases between estimate and closing. Recording fees fall under a separate, collective tolerance.
In practice, look at the “Taxes and Other Government Fees” lines on the Loan Estimate. Ask the title company for its tax computation. The transfer-tax line should be about the same from one lender to the next for the same loan, so differences usually point to different assumptions about your payoff or exemption.
Folding Recordation Into Your Cash-Out Math
Treat the tax as part of what the cash costs. A few habits help.
1. Net your proceeds. Subtract the payoff, the financed costs and the government charges from the new principal. What is left is your usable cash.
2. Decide how to pay it. Financing the tax raises the balance, and the payment follows it for the life of the loan. Paying in cash raises your closing cash. Neither is free.
3. Weigh the alternative. If you only need a modest amount, compare a cash-out against keeping your first mortgage as is. Compare a second lien, too. A new first mortgage re-prices the entire balance, while a smaller loan leaves your existing loan alone.
Common mistakes:
- Assuming the base is the cash-out only. Financed costs count.
- Using a purchase-based calculator for a refinance.
- Believing a “no-cost” refinance has no government taxes. The costs are built into the rate or the balance.
- Skipping the payoff statement. It proves the balance that sets your exemption.
- Relying on an older rate page.
Key Terms Defined
Recordation tax: A Maryland tax on recorded documents, measured by the principal a mortgage secures.
Original mortgagor: The person who took out the existing loan, who is the one the refinance exemption is written for.
Taxable increase: The amount by which the new principal exceeds the payoff on the old loan.
Payoff statement: The lender’s written balance that proves how much of the new loan replaces old debt.
Seasoning: The minimum time a loan or ownership must exist before a cash-out is allowed.
Transfer tax (disclosure sense): A fee measured by loan amount or sale price, which is how the Loan Estimate classes a loan-amount-based recordation tax.
Frequently Asked Questions
Does a refinance in Montgomery County, Maryland trigger recordation tax?
Only on the part above your payoff. The statute exempts new principal up to the unpaid balance on the existing loan, if you are the original mortgagor and the sworn statement is correct. A cash-out or financed closing costs create a taxable increase.
Is the tax charged on the cash-out amount alone?
Not exactly. The base is the increase over the payoff, which includes the cash you take and any closing costs you finance. Pages that say “cash-out only” leave out the financed costs.
Can I avoid the tax by inheriting or being added to a deed first?
Not as a planning step. The exemption is tied to the original mortgagor, and acquiring title by deed or inheritance may take you outside it. Ask a settlement attorney before restructuring anything.
Does a lender credit or a “no-cost” refinance cover recordation tax?
No. Government taxes remain. In a “no-cost” structure, the cost is built into the rate or the balance. Check the government-fee lines on the Loan Estimate to see what you are paying.
Do streamline refinances carry this tax?
Usually very little. FHA Streamlines and VA IRRRLs are built to replace the existing balance without adding much new principal, so the taxable increase is small. They also provide no meaningful cash, so they do not replace a cash-out.
Next Step
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. Ask for the government-fee lines early, so the recordation figure is part of the decision and not a closing-table surprise. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
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.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Montgomery County Department of Finance, Bill 17-23
2. Maryland General Assembly, Tax-Property §12-108
3. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
4. HUD, Single Family Streamline Refinance
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How Much More a Cash-Out Refinance Costs on a Condo · How Much More a Cash-Out Refinance Costs on a Texas Homestead · How Mortgage Insurance Adds to a 2-4 Unit Cash-Out Refinance Payment
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.