The Quick Read: On a VA cash-out refinance, Montgomery County, Maryland taxes the new debt that sits above your old loan’s unpaid balance, not the whole new loan. That taxable gap includes the cash you take out, any financed closing costs, and a financed funding fee. VA lets the veteran pay this tax, and the title agent calculates the exact figure. This is Montgomery County in Maryland, not the Montgomery Counties in other states.
Key Takeaways
- Recordation tax is a government charge for recording your new deed of trust. It is not a lender fee.
- On a refinance, the old loan’s unpaid principal is exempt, but only when the original borrower is refinancing. The difference between the new loan and the old balance is taxed.
- A VA cash-out can reach 100% of appraised value, so the taxable gap can be larger than on other refinances.
- The county uses a tiered structure with higher charges on the portion above $500,000. Ask the title agent for the current schedule.
- At or near 100% of value, there may be no room to finance the tax. You would pay it in cash at closing.
What Is Recordation Tax, and How Is It Different From Transfer Tax?
Recordation tax is a charge for putting a document on the public land record. When you take a new mortgage, the lender records a deed of trust. Maryland and the county tax that recording based on the debt it secures.
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.
Transfer tax is a different charge. It applies when ownership changes hands. A refinance doesn’t change who owns the home, so transfer tax generally doesn’t come into play. That matters, because many online calculators blend the two and overstate a refinance bill.
| Factor | Recordation tax | Transfer tax |
|---|---|---|
| What triggers it | Recording a deed or deed of trust | A change in ownership |
| What it’s based on | Debt secured or sale price | Sale price |
| Hits a refinance? | Yes, on new debt above the old balance | Generally no |
| Hits a purchase? | On the deed, yes; the purchase-money loan is exempt | Yes |
Maryland sets the statewide framework in its tax code. Montgomery County adds its own rates on top under county law. Your settlement sheet may show these as stacked line items. They are separate from the plain recording fee the clerk charges to file paperwork.
How Does the County Build the Charge?
The county charge has three parts: a base rate, a school increment, and a premium that applies only to the portion over $500,000. Rates apply per $500 of debt, or any fraction of $500. A loan that lands one dollar over a $500 step gets taxed as if it filled the whole step.
That per-$500 rounding is why rule-of-thumb percentages mislead. The effective rate rises as the taxable amount climbs, because the premium kicks in above the threshold. A recent county bill raised the premium and the school increment, according to Montgomery County Council staff materials. Law-firm summaries describe steeper premium tiers higher up, too.
Treat any figure you read online, including here, as a pointer. Your title or settlement agent gets the final number from the county.
How Does This Apply to a Refinance Versus a Purchase?
On a refinance, the tax applies to principal debt above the principal remaining on the original loan, per the same Council staff materials. The exemption sits in Maryland Tax-Property §12-108. It applies when the original mortgagor, or the mortgagor and spouse, refinances. You sign an affidavit that states you are the original mortgagor and gives the unpaid principal of the loan being paid off.
A purchase works differently. A purchase-money mortgage is exempt under that same section, so the loan itself generally owes none, though the deed is taxed on its own terms. That exemption does not carry over to a cash-out. A cash-out gets only the refinance exemption.
| Situation | What’s exempt | What’s taxed |
|---|---|---|
| VA purchase | Purchase-money mortgage | Generally none on the loan |
| Rate-and-term refinance | Old unpaid balance | Any new debt above it |
| VA cash-out | Old unpaid balance | Cash out, financed costs, financed fee |
How Does a VA Cash-Out Create the Taxable Amount?
Walk through it in order. This is how a VA cash-out file actually sets up the number the county taxes.
Step 1: The VA appraisal sets the ceiling. The VA cash-out refinance program lets you borrow up to 100% of the appraised value, with the financed funding fee included in that ceiling. Across the wholesale programs I place VA files with, that is the outer limit. It also refinances any loan type into VA, so a conventional or FHA loan can be paid off this way.
Step 2: The loan amount lands on the deed of trust. The new deed of trust states the principal debt it secures. That printed figure is what the county looks at.
Step 3: The affidavit names the old balance. You state the unpaid principal of the loan being paid off. That amount is exempt.
Step 4: The difference is taxable. Subtract the old balance from the new secured debt. Everything that raised the new loan above the old balance is in that gap. That includes cash out, financed closing costs, and a financed funding fee.
Step 5: The title agent applies the rates. The tiers and the per-$500 rounding get applied to the taxable gap. The county reviews and approves the documents before recording.
The funding fee matters here. On a cash-out, it 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 the other exempt groups. If you finance it, it adds to the new loan, and so to the taxable gap.
What Do the Numbers Look Like? Three Percentage Examples
I’m keeping these in percentages of home value, with no dollar figures. They are modeled assumptions, not quotes.
Example 1: A modest cash-out. Say your old balance is about 55% of the home’s appraised value. You refinance to 75% of value. The taxable gap is about 20% of value. On a smaller home, that whole gap stays below the $500,000 premium line.
Example 2: A cash-out that crosses the premium line. Picture a higher-value home. The old balance is about 60% of value, and the new VA loan reaches 100%. The gap is about 40% of value, and on a high-priced home that can push past $500,000. The portion above the line is taxed at the higher premium rate. How the premium reads against the total new loan versus the taxable difference is a point to confirm with the county or the title agent. Don’t assume either way.
Example 3: No new money. Now say the new loan only matches the old payoff and the costs are paid in cash. The taxable gap is close to zero. If the new principal is at or below the old balance, there is little or nothing to tax. That is the case where a refinance without cash-out can cost the least in recordation tax.
The pattern is simple. The tax follows the size of the gap, not the cash that lands in your account.
Who Pays, and Where Does It Show Up?
VA allows the veteran to pay recording taxes. The VA Lenders Handbook, Chapter 8 lists “recording fees and recording taxes or other charges incident to recordation” among the itemized charges the veteran can bear. VA Circular 26-24-19 restates this and adds that the lender must support the amount with an invoice or equivalent.
That clears up two common mix-ups:
- The tax is not part of the lender’s 1% flat charge. The handbook treats that charge as lender overhead. Government and third-party charges are separate and itemized.
- VA does not bar the veteran from paying it. It allows it, with documentation.
On your paperwork, look for it among the government recording and tax charges on the Closing Disclosure. It is a different line from the clerk’s recording fee. Ask the title company for a draft that itemizes the recordation tax before you commit.
Where Does the General Rule Break?
Each of these changes who owes what or how much.
You are not the original mortgagor. The exemption is tied to the original mortgagor, with defined spouse and trust exceptions. If you got the home by deed or by assuming the loan, have the title agent confirm that the exemption applies to you.
A spouse is added or removed. Guidance from Cecil County, a Maryland county in the state’s northeast corner, says spouses keep the refinance exemption when one is added or removed. That is Cecil County’s reading, not a Montgomery County rule, so confirm locally.
More property is added as security. Law-firm guidance says the refinance exemption still applies if additional real property joins the new loan, as long as no property securing the old loan is released. That is a niche case, but it matters for a home with an adjoining lot.
You are doing an IRRRL instead. The IRRRL is the streamlined refinance of an existing VA loan. It carries a 0.5% fee unless exempt, needs no VA appraisal, and requires a net tangible benefit. It can fold allowable fees and charges into the loan. A cash-out carries more new debt, so more of it is taxable.
First-time buyer relief. Maryland’s state recordation relief for first-time buyers applies to purchases. Don’t count on it for a refinance.
You finance costs into a cash-out. Financed costs count toward the 100% ceiling. Any amount over the ceiling is paid in cash at closing.
You are comparing it with an FHA cash-out. The same refinance exemption logic applies there, but the loan ceiling and costs differ. Lendmire’s piece FHA Cash-Out Recordation Costs for a Montgomery County, Maryland Home shows how the taxable gap changes under that program.
Can You Finance the Tax, or Do You Pay It in Cash?
It depends on how much room you have under the ceiling. If the appraisal supports a loan well below 100% of value, the tax can often be rolled into the loan, subject to lender guidelines. That raises the loan balance and the payment.
At or near 100%, there is no headroom. The VA cash-out rule caps the loan at the reasonable value VA sets. Anything that would push the total over that line has to be paid out of pocket.
Net cash is the new loan, minus your payoff, the funding fee, and the closing costs. A tax paid from proceeds shrinks what you receive. This is why I tell veterans to run the net-proceeds math with the recordation line included, not as an afterthought.
The same rule contains tests meant to confirm that the refinance helps you. A cash-out must show a net tangible benefit. Fee recoupment tests run on a 36-month window in the relevant scenarios, and taxes and escrow amounts are excluded from the fee test in the regulation text. Check the exact subsections with your loan officer before relying on that point. The 90% figure that people quote for VA cash-outs is one of those benefit tests, not the loan ceiling.
Seasoning applies too. The cash-out carries the same seasoning as the IRRRL: the later of 210 days from the first payment and the sixth payment.
How Is a VA Cash-Out Underwritten Beyond the Tax?
The tax is a closing-cost question. Whether you get the loan is a separate underwriting question. Across the wholesale programs I use, the file runs on a few pieces:
- Eligibility. The certificate of eligibility from VA decides it, and service requirements are VA’s rules.
- Credit. VA sets no minimum score. The wholesale programs I place with start at a 580 decision score, and some lenders set a higher floor.
- Residual income. This is the controlling test. It measures what is left each month after your major obligations and living costs.
- Debt-to-income. The 41% figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
- Appraisal. It sets reasonable value, which caps the loan and, as above, drives the taxable amount.
All of this is subject to lender guidelines and full file review.
Common Estimation Mistakes
- Taxing the full new loan. The exempt old balance comes off first. The county taxes the gap.
- Using a flat percentage. Tiers and per-$500 rounding make the effective rate climb.
- Mixing in transfer tax. A refinance generally doesn’t trigger it.
- Assuming the tax is only on cash out. Financed costs and a financed funding fee raise the new loan above the old balance too, so they are in the gap.
- Skipping the original-mortgagor check. A borrower who isn’t the original mortgagor may lose the exemption unless an exception applies.
- Ignoring the ceiling. A VA cash-out at 100% leaves no room to finance the tax.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
What Does the Decision Look Like in Practice?
Start with three questions. How big is the gap between your new loan and your old payoff? Are you the original mortgagor? Does the gap cross the $500,000 line?
Then ask the title company for a draft Closing Disclosure that itemizes the recordation tax. Compare the cash you would net against what you would owe on your current loan. If the tax and other costs eat most of the cash out, a smaller cash-out, or none, may serve you better.
Costs matter, too. Lender-reported cash-out closing costs vary by lender, and you should compare the full Loan Estimate, not one line. The recordation tax is one of the larger government charges on a Maryland refinance, and it is the one that moves with how much you borrow.
Key Terms Defined
Recordation tax: A government charge for recording a deed or deed of trust, based on the debt or price.
Deed of trust: The document that secures your mortgage against the home and states the principal debt.
Original mortgagor: The borrower on the loan being refinanced, which the refinance exemption is tied to.
Taxable gap: The new secured debt minus the old unpaid principal.
Funding fee: VA’s one-time fee on most loans. It can be financed or waived for exempt veterans.
Residual income: The money left each month after major obligations and living costs, which VA treats as the controlling test.
Net tangible benefit: VA’s test that a refinance must clearly help the borrower.
Frequently Asked Questions
Does Montgomery County tax the whole new VA cash-out loan?
No. On a refinance, the tax applies to principal above the original loan’s remaining balance. The old balance is exempt when the original mortgagor refinances. One open point is how the $500,000 premium tier reads against the total loan versus the gap, so confirm that with the title agent.
Is recordation tax the same as the closing-cost cap VA applies?
No. The 1% flat charge covers lender overhead. Government charges like recordation tax sit in the itemized list, and VA allows the veteran to pay them with invoice support.
Can I roll the recordation tax into the loan?
Sometimes. If your loan sits below 100% of appraised value, there may be room to finance it, subject to lender guidelines. At or near 100%, the financed fee and costs already use the ceiling, so you would pay in cash.
Do I owe transfer tax on a refinance?
Generally no, because ownership doesn’t change. Practitioner guidance says transfer taxes apply when ownership transfers. Confirm against the statute with your title agent.
Where do I find the current tier schedule?
Ask your settlement or title agent, or the county. Confirm the current schedule with one of them directly rather than relying on general summaries. A draft Closing Disclosure will show the actual charge.
Weighing the Cash-Out
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. Bring your current payoff and a rough home value, and ask for the tax line in writing before you decide. For your own numbers, request a scenario review. Anything here is subject to lender guidelines and is not a commitment to lend.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. 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. Montgomery County Council staff materials
2. Maryland Tax-Property §12-108
3. VA Lenders Handbook, Chapter 8 (VAP26-7)
This article is part of Lendmire’s VA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can VA Cash-Out Proceeds Be Used for Any Purpose? · Can a VA Cash-Out Refinance Buy Out an Ex-Spouse? · VA Cash-Out Recordation Rules for a Montgomery County Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.