The Quick Read: On an FHA cash-out refinance in Montgomery County, Maryland, the county’s recordation tax is charged mainly on the new debt above what you still owe. It is a one-time government charge, separate from the flat clerk’s fee. When the refinance exemption is claimed correctly, the base is the increase in debt, not the whole new loan. Any amount you finance counts toward the loan size, so it affects both your cash at closing and how much room you have under the FHA ceiling.
This page covers Maryland’s Montgomery County, not the other counties of the same name in other states. The rules below are the county’s, not FHA’s. FHA sets how much you can borrow. The county decides what it charges to record the new loan.
Key Takeaways
- Recordation tax is a percentage-based government charge. It is not the same as a flat recording fee.
- On an eligible refinance, the tax generally falls on the debt above your unpaid principal balance, not on the full new loan.
- The exemption has to be claimed with paperwork. It is not automatic.
- FHA cash-out reaches 80% loan-to-value (LTV, the loan as a share of the home’s appraised value) on a home you have owned and lived in for 12 months.
- Costs you finance add to the loan and use up room under that ceiling. Costs you pay in cash do not.
- Rates are set by county law and can change. Confirm the current schedule before you plan around any figure.
What Recordation Tax Is (and What It Is Not)
Recordation tax is a one-time charge for putting your mortgage or deed of trust into the county land records. It is based on the amount of debt the document secures. The county council describes it as a one-time cost on the principal amount of debt secured by a mortgage or deed of trust.
Borrowers often lump three different charges together. They are not the same.
| Charge | How it is set | Who gets it |
|---|---|---|
| Recordation tax | Percentage of debt, per $500 | County government |
| Transfer tax | Tied to a sale price | State and county |
| Clerk recording fee | Flat fee per document | Land records office |
Transfer tax mostly belongs to purchases. A cash-out refinance of a home you already own is not a sale, so the recordation tax is the big local line. The flat clerk’s fee is small by comparison.
How an FHA Cash-Out Is Built
A cash-out refinance replaces your current mortgage with a new, larger one. The difference comes to you as cash. Lendmire arranges the FHA cash-out refinance program through wholesale lenders. The lender, not Lendmire, reviews and approves the file.
Across the wholesale programs Lendmire places FHA files with, the cash-out structure is consistent:
- Ownership and occupancy: you owned the home and lived in it as your principal residence for 12 months before the case number is assigned.
- Leverage: the new loan reaches 80% of the home’s value.
- Mortgage insurance: FHA charges an upfront premium of 1.75% of the base loan, which can be financed. An annual premium of 0.15% to 0.75% of the balance applies too, depending on term, loan amount and LTV.
- Ratios: the base housing and total debt ratios are 31/43. Documented compensating factors can stretch the top tier to 40/50. The automated finding governs most files.
- Loan limits: county loan limits apply.
All of this is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
The new loan amount is built from four pieces:
1. The payoff of your existing mortgage and any liens being cleared.
2. Closing costs you choose to finance.
3. The financed upfront mortgage insurance premium.
4. The cash you take out.
Piece one is exempt from recordation tax when you qualify. Pieces two through four are new debt, and that is where the tax lands.
How the Tax Is Figured on a Cash-Out, Step by Step
The county council’s staff explain that, on a refinance, the tax applies to principal debt greater than the principal remaining on the original debt. The statutory basis sits in the Maryland Tax-Property article, sections 12-101 through 12-118. Here is the flow.
Step 1: Find your unpaid principal balance. This is the principal still owed on the loan being replaced. Baltimore City’s Finance office publishes guidance that shows the paperwork pattern, even though it is another jurisdiction. It states that accrued interest and fees are not part of that balance.
Step 2: Build the new loan. The payoff, financed costs, financed premium and your cash-out add up to the new debt.
Step 3: Subtract. New debt minus the unpaid principal balance gives the taxable increase.
Step 4: Claim the exemption. The refinance exemption in Tax-Property section 12-108(g) is limited to the original mortgagor. You swear to that status and to the exact unpaid balance. The deed of trust carries recital language, and the closing agent files an exemption affidavit. A law-firm summary notes the exemption has to be claimed with an affidavit. Skip it and the whole loan can be taxed.
Step 5: Apply the schedule. The county’s per-$500 amounts are applied to the taxable base. Counties generally round up to the next $500. Your title company computes the final figure.
Every instrument recorded in Maryland goes in with an intake sheet that has a section for claiming exemptions. Your settlement agent handles this. You should still know the exemption exists, because it is the main reason cash-out recordation tax is lower than many borrowers assume.
A Worked Example in Percentages
Say a home appraises at 100% of its value. You owe 55% of that value on your current mortgage. You take an FHA cash-out loan at the 80% ceiling.
- The exempt portion is the 55% you already owe.
- The taxable increase is the other 25% of value.
- That 25% is cash to you, plus any financed costs and the financed upfront premium.
Now compare a purchase. On a purchase, recordation tax falls on the whole mortgage, less any purchase-money exemption. That is why a cash-out on a home with a lot of old debt can carry a smaller tax base than a purchase of the same size.
One honest caution: costs you finance are part of the taxable increase. Pay them in cash and the loan is smaller, the tax base is smaller, and you keep more room under the ceiling. Financing them preserves your cash but costs more in tax and in balance. That trade is the real decision.
The 80% Ceiling and Financed Costs
HUD’s Mortgagee Letter 2019-11 cut the FHA cash-out limit to 80% of value, replacing the older 85%. The letter measures the limit against “Adjusted Value,” and every lien that stays in place counts toward the combined ratio. HUD’s press release says the change aligned FHA with the limit used for conventional cash-out loans.
Old web pages still show 85%. That figure is obsolete for current files.
Here is what the ceiling means for recordation. Any tax or cost you roll into the loan adds to the loan amount. The 80% ceiling does not move. So financing the tax shrinks the cash that reaches you. A paid-in-cash tax does not touch the ceiling, though it reduces what you walk away with.
A second lien changes the math too. FHA’s cap is combined, so a home equity line or second mortgage that stays in place counts toward the 80%.
An 80% ceiling is a limit, not a promise. The lender still reviews credit, income, payment history and the appraisal.
Montgomery’s Published Schedule
The county Finance Department publishes the schedule that took effect under Bill 17-23. It has three layers: a base amount, a school increment, and premium tiers for higher-value instruments.
| Layer | Per $500 |
|---|---|
| Base | $2.08 |
| School increment | $2.37 |
| Premium: $500,000 to $600,000 | $2.30 |
| Premium: $600,000.01 to $750,000 | $5.75 |
| Premium: $750,000.01 to $1,000,000 | $6.33 |
| Premium: above $1,000,000 | $6.90 |
Treat this as a reading aid, not a quote. Two points are unsettled in the public sources.
First, it is not clear from the official materials whether the premium tiers on a refinance apply to the full new loan or only to the taxable increase. Ask your title company or the Finance Department before you plan around a number.
Second, county rates are set by local law and change. Older pages, including some county information pages, still show the pre-change description. Use the Finance Department page as the controlling source, and confirm it is current.
Where the General Rule Breaks
The “tax only on the increase” rule has edges. These are the ones that catch borrowers.
You are not the original mortgagor. The exemption is limited to the original mortgagor, but the statutory definition is broader than the first person who signed. According to the Maryland State Bar Association’s recordation and transfer tax guide, it can reach someone who assumed the debt, or a trustee refinancing for a living trust. Adding a spouse to the new loan does not defeat it. If your title history is anything unusual, tell your loan officer early.
The old loan never paid the tax. The same guide says the exemption does not depend on tax having been paid on the original instrument.
Principal-residence wording. The exemption once covered only principal residences. A 2013 amendment dropped that limit. FHA cash-out is still an owner-occupant product, so this matters mostly as a contrast: the county’s exemption is broader than FHA’s occupancy rule.
The purchase-side exemption. Montgomery’s first-$100,000 break for principal residences is framed around a sale. Do not assume it applies to a refinance.
The unpaid balance is wrong on the paperwork. The affidavit needs the exact unpaid principal balance. Rolling accrued interest or fees into that figure is a common mistake. It is not allowed.
A different county. Other Maryland counties have their own rates and forms. Prince George’s County, for example, publishes its own finance affidavit instructions and uses its own per-$500 amount. Maryland counties do not share one formula, so a number from a neighboring county tells you little.
A different FHA product. An FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It is not a cash-out. The cash-out follows the 80% rules above. Confirm which one fits your goal before you compare costs.
Where It Shows Up on Your Paperwork
Federal disclosure rules classify a government charge that is based on the loan amount as a transfer tax, even when state law uses a different name. The CFPB’s Regulation Z, section 1026.37 uses a 0.5%-of-loan example and treats it as a transfer tax, not a recording fee.
In practice, scan the “Taxes and Other Government Fees” section of your Loan Estimate and Closing Disclosure. Do not stop at a small flat recording line. The percentage-based Maryland charge may sit separately. How a given line is labeled is a call for the settlement agent, so do not read too much into the heading.
When you compare offers, check that every Loan Estimate uses the same government-tax assumptions. Estimates can differ from final figures, and nothing here is a promise that they will match.
Deciding Whether the Cash-Out Is Worth It
Recordation tax rarely decides the whole question. It is one line in a stack that also includes the appraisal, title work, settlement fees, escrows and FHA’s upfront premium. Still, it shapes three choices.
1. How much cash to take. Every added dollar of cash-out is new debt, and new debt is taxed. Borrow what you need, not the maximum.
2. Whether to finance costs. Paying costs in cash trims the tax base and preserves ceiling room. Financing them keeps cash in your pocket today.
3. Whether to keep your current loan. If you only need a small amount of cash, a second lien or line of credit may avoid refinancing the whole balance. Then the combined-lien test applies, and the tax picture changes.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Recordation tax: a one-time county charge, based on the amount of debt, for recording a mortgage or deed of trust.
Unpaid principal balance: the principal still owed on your current loan, not counting accrued interest or fees.
Original mortgagor: the borrower who qualifies for the Maryland refinance exemption, a term the statute defines more broadly than the first signer.
Adjusted Value: the value FHA uses to test the 80% ceiling.
Combined loan-to-value (CLTV): all liens on the home, added together, as a share of its value.
Upfront premium: the one-time FHA mortgage insurance charge, 1.75% of the base loan, which can be financed.
Frequently Asked Questions
Does recordation tax apply to my whole new FHA cash-out loan?
Usually not. On an eligible refinance, the tax falls on the debt above your unpaid principal balance. That requires claiming the exemption with sworn paperwork. If it is not claimed, the base can be the full loan.
Is the recordation tax the same as the recording fee?
No. The clerk’s recording fee is a flat charge per document. Recordation tax is a percentage of the debt, charged in per-$500 steps. They can appear on different lines of your Closing Disclosure.
Can I roll the tax into my FHA cash-out loan?
Often, yes, but financed costs add to the loan amount and use up room under the 80% ceiling. That leaves you less cash. Paying it at closing keeps the loan smaller. Your lender can show you both versions.
Do Montgomery County’s rates ever change?
Yes. County law sets them, and the schedule shifted under Bill 17-23. Older pages may still show the earlier description. Check the Finance Department page, and ask your title company for the figure that applies to your file.
Does it matter if I am not the person who signed the original mortgage?
Yes, it can matter. The exemption belongs to the original mortgagor, but the definition covers some assumptions and living-trust refinances. Raise any unusual ownership history with your loan officer at the start.
Practical Next Steps
- Gather your current mortgage statement, which shows the unpaid principal balance.
- Decide how much cash you actually need.
- Ask for a Loan Estimate and read the “Taxes and Other Government Fees” section line by line.
- Ask your title company to confirm the exemption paperwork and the current county schedule.
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.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s FHA loan programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage 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.
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References
1. Montgomery County news release on Bill 17-23
2. Montgomery County Council: Bill 17-23 action memo
3. Baltimore City Finance: Recordation Taxes
4. JGL Law – Maryland recordation tax changes
5. HUD Mortgagee Letter 2019-11
7. Montgomery County Department of Finance: Bill 17-23 recordation tax changes
8. Prince George’s County: Finance Affidavit instructions
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Conventional vs FHA Cash-Out Requirements on a 2–4 Unit Primary Home · How Maryland Counties Size Recordation Charges on an FHA Cash-Out · How to Qualify for FHA Cash-Out on a Home You Own Outright
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.