The Quick Read: Maryland recordation tax on a DSCR cash-out refinance generally falls only on the new debt above the principal you are paying off, provided the borrower is the original mortgagor and the exemption paperwork is done correctly. The DSCR loan has no recording rules of its own. The tax follows the property’s jurisdiction and the borrower’s status. Here is what to know:
- A cash-out that stays within the unpaid principal can owe little or no recordation tax. The cash layer above it is taxed like a new mortgage.
- The exemption reaches investors and entities. It is not limited to owner-occupants.
- Montgomery County moved to a tiered rate schedule on October 1, so older rate charts are obsolete.
- Transfer tax generally does not apply to a refinance deed of trust.
- Equity on paper is not cash in hand. Model the proceeds after the tax, title fees, and lender costs.
Investors tend to price a cash-out by leverage and coverage alone. In Maryland, a local recording tax sits on top of both, and it is the line item that most often shrinks the check at the table. Montgomery County is a useful worked example, but the lesson travels: a cash-out estimate built in one county should never be reused in another.
DSCR Cash-Out Calculator
Run the cash-out numbers in Maryland
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 8, 2026
Prefilled with starting assumptions — enter your property’s value, balance, taxes, and insurance for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 8, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Property value, balance, taxes, and insurance are editable estimates. Maximum loan-to-value varies by lender, program, property type, and seasoning. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
What Is Recordation Tax, and Who Sets It?
Recordation tax is a Maryland state-law tax charged when a deed of trust or other instrument is recorded in the land records. Each of Maryland’s 24 jurisdictions sets its own rate, so the same loan can carry a different tax bill one county over.
Montgomery County changed its schedule through Bill 17-23. The county’s MC311 page from the Department of Finance confirms the new rates took effect October 1. Any chart that predates that change is out of date, and an investor should not price a deal from one.
One caution on figures. Practitioner reports list the lower tiers at $4.45 per $500 on the first $500,000 and $6.75 per $500 from $500,000 to $600,000, according to Starfield & Smith. The tiers continue to step up as the loan grows. Treat those numbers as practitioner-reported and confirm the current schedule with the settlement agent or the county Department of Finance before relying on them.
One mechanical detail matters. The county computes the tax per $500 or fraction of $500, so any partial unit is taxed as a full one.
How Does the Refinance Exemption Work?
The state exempts a refinance deed of trust to the extent the new loan does not exceed the unpaid principal on the existing mortgage. That exemption belongs to the “original mortgagor.” Ballard Spahr’s summary of Maryland’s refinance rules lays out this logic.
Two points make it work for investors.
First, the exemption was widened years ago. It no longer stops at principal residences. It now covers any person, including entities, and any type of property. A rental held by an LLC can use it, subject to lender program eligibility and the borrower meeting the original-mortgagor test.
Second, the exempt amount is the unpaid principal at payoff. It is not the original loan amount, and it does not include accrued interest or fees. Baltimore City’s guidance makes the same principal-only point, though that page is for a different jurisdiction.
How a DSCR Cash-Out Gets Taxed, Step by Step
The tax is separate from the lender’s sizing. Lender underwriting asks whether the rent covers the payment and whether the leverage fits program limits. The recording tax asks a different question: how much of the new loan is new debt?
Here is the sequence on a typical file.
1. The lender sizes the loan. Across the wholesale network, most cash-out programs top out around 75% LTV on an investment property, with about six months of ownership (seasoning) expected, measured from title recording. That figure is a ceiling, not a promise, and it is subject to lender guidelines.
2. The new deed of trust is recorded. The face amount of the new loan is the debt secured. On a cash-out, that is the payoff, plus the cash to the borrower, plus any financed costs.
3. The settlement agent computes the tax. The agent collects it at settlement in coordination with the lender.
4. The exemption is claimed. The original mortgagor, or an agent, gives a sworn statement. It confirms original-mortgagor status and states the exact unpaid principal being refinanced. It appears either in the deed of trust’s recitals or in a separate affidavit.
5. The taxable base is the layer above the payoff. LegalClarity’s worked illustration shows the idea: a $250,000 balance refinanced into $300,000 exempts the first $250,000, and the remaining $50,000 is taxed like a new mortgage.
The exempt amount comes from the recorded payoff, so the paperwork has to match it exactly. A mismatch between the affidavit and the payoff letter is a common reason a recording gets held up.
Where the Cash-Out Layer Lands in the Tiers
The rate climbs in steps as loan size grows. What is not settled in current published guidance is whether the taxable layer is priced at the tier its own size suggests, or at the tier of the whole new loan.
An older practitioner post suggested the county prices the cash layer based on the total new loan amount. That post used pre-change rates, and the method could not be confirmed against current county guidance.
What this means in practice: ask the settlement agent which tier prices the taxable layer before you choose a cash-out amount. If the whole-loan method applies, a bigger cash-out costs more per dollar than the layer alone would suggest. If the layer-only method applies, the cost is gentler. The answer changes the math on a borderline cash-out, so get it in writing before deciding.
Rate-and-Term Versus Cash-Out
A rate-and-term refinance returns no cash at closing. If the new loan stays within the unpaid principal, the borrower is the original mortgagor, and the affidavit is right, recordation tax can be zero. A cash-out always creates a taxable layer.
| Factor | Rate-and-term | Cash-out |
|---|---|---|
| Cash back at closing | None | Yes |
| Taxable layer | None if within payoff | Amount above payoff |
| Exemption paperwork | Required | Required |
| Net-proceeds effect | Minimal | Reduces the check |
For an investor weighing the two, the flip point is simple. If the goal is to pull cash for the next purchase, the tax is a cost of doing business, and the question is whether the deployed cash earns more than it costs. If the goal is only to restructure the loan, a rate-and-term file avoids that layer entirely.
Who Counts as the Original Mortgagor?
The term is narrower than it sounds, and investors holding property in unusual ways need to read it carefully.
The definition includes a person who assumed debt on property they purchased and paid recordation tax on. A spouse added to the new loan alongside the original mortgagor does not defeat the exemption. A trust settlor whose trustee refinances generally fits too, though the affidavit wording matters.
| Situation | Exemption outlook |
|---|---|
| Borrower originally financed the purchase | Generally fits |
| Spouse added to the new loan | Generally fits |
| Living-trust settlor, trustee signs | Generally fits; wording matters |
| Title moved into a new LLC before the cash-out | Confirm with title counsel |
That last row is the one that trips investors. If you moved a rental into a new LLC, or changed who is on title, before refinancing, whether the borrower is still the original mortgagor is a title-attorney question, so treat it as unresolved until counsel confirms. The related issue of how vesting affects a DSCR file is covered in Lendmire’s piece DSCR Cash-Out Vesting Rules for a Single-Member LLC Rental.
Edge Cases Where the General Rule Breaks
Bridge or private-lender exits. A BRRRR investor often refinances out of a short-term loan. If that bridge loan was never recorded, there may be no recorded balance to credit, and the taxable layer can grow. Confirm with title counsel how a prior unrecorded lien is treated.
Paying down before the refinance. The exempt amount is the principal at payoff. A lower balance means a larger share of the new loan is taxable if the loan amount stays fixed.
Supplemental instruments. A modification or amendment of an existing recorded loan is generally taxed only to the extent of new consideration or increased principal. That route can fit an investor who already holds a recorded loan, but it is a different transaction from a new DSCR lender’s first-lien refinance.
Other counties. Do not apply Montgomery’s rules next door. Prince George’s County uses its own affidavit and treats its county transfer tax differently on a refinance. The state exemption is not mirrored for county transfer taxes in counties that charge them.
Ineligible collateral. The tax question is moot if the property is not eligible. Manufactured homes, log homes, and barndominiums are not offered through the network’s DSCR programs.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
What the Cost Does to Investor Math
The tax comes out of settlement proceeds. Model the net, not the gross.
A practical approach: start with the maximum cash-out the 75% LTV ceiling allows, then subtract the recordation tax on the taxable layer, title and settlement charges, and lender costs. Recording fees charged by the clerk are separate from the tax, and both reduce the check. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Reserves matter too. Most programs in the network look for around six months of PITIA in reserves, stepping up to about nine months on loans above $1,500,000. Cash you pull at closing cannot double as the reserves the lender needs to see.
Coverage still has to work after the new loan is sized. Most select programs start at a 1.00 DSCR floor, and stronger ratios open better terms. A separate select-lender path goes below 1.00, with leverage and terms adjusted. Clearing 1.00 only means rent covers the payment. It does not mean positive cash flow, because repairs, vacancy, management, and utilities sit outside the calculation. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Credit shapes the leverage tier. A 620 floor exists in parts of the network, most programs want around 660, and 700 or above unlocks the strongest leverage. A bigger cash-out request raises recordation tax directly, so the right amount is the one where the cash deployed still earns more than all-in cost. For a county-by-county view of how much a cash-out typically carries, see Lendmire’s article How Much Recordation Cost a DSCR Cash-Out Carries by County.
Key Terms Defined
Recordation tax: A Maryland tax charged when a deed of trust or similar instrument is recorded in the land records.
Original mortgagor: The borrower who qualifies for the refinance exemption, including someone who assumed the debt and paid recordation tax on the purchase.
Unpaid principal balance: The loan principal still owed at payoff, which excludes interest and fees and sets the exempt amount.
Taxable layer: The portion of a new loan above the unpaid principal being refinanced.
Transfer tax: A tax on ownership transfers that generally does not apply to a refinance deed of trust.
DSCR: The ratio of rent used for lender review to the full monthly obligation (principal, interest, taxes, insurance, and any HOA dues).
What Investors Should Do Before Choosing a Cash-Out Amount
Run this checklist before you set the number.
- Confirm you are the original mortgagor, especially if title has moved.
- Get the exact unpaid principal from the payoff letter.
- Ask the settlement agent to price the taxable layer and name the tier method used.
- Request an itemized settlement statement before locking the cash-out amount.
- Confirm the current county schedule with the Department of Finance.
- Model net proceeds, then check that coverage and reserves still hold.
This article explains how the rules generally work and is not tax or legal advice. Title counsel and the settlement agent have the final word on your file.
Frequently Asked Questions
Does a DSCR cash-out refinance in Montgomery County trigger transfer tax?
Generally no. The state transfer tax does not apply to mortgages and deeds of trust. County rules differ elsewhere in Maryland, so do not assume the same answer in another county. Recordation tax is the charge to plan for.
Who pays the recordation tax on a refinance?
It is collected at settlement by the settlement agent and comes out of the borrower’s proceeds in most cash-out files. Who bears the cost can be negotiated on a purchase, but on a cash-out refinance it typically reduces the borrower’s net. Check the itemized settlement statement.
Does an LLC change the recordation tax?
The refinance exemption now reaches entities and investment property, so holding title in an LLC does not by itself defeat it, subject to lender program eligibility. The open question is original-mortgagor status if title moved into the LLC before the cash-out. That is a title-counsel call.
Does taking more cash back change the calculation?
Yes. The exempt amount stays fixed at the payoff, and every added dollar of cash-out lands in the taxable layer. Because rates step up with loan size, a larger cash-out can cost more per dollar.
Is the DSCR lender responsible for the recordation rules?
No. The lender sizes the loan on coverage, leverage, credit, and reserves. The tax is set by the property’s jurisdiction and the borrower’s status, and the DSCR guidelines do not change it.
Next Step
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. For program background, the complete DSCR loans guide covers how coverage, leverage, and reserves fit together.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a DSCR-focused mortgage broker that arranges investor loans through select lenders in its wholesale network, across 41 markets including Washington, D.C. It is not a direct lender, and nothing here is a commitment to lend. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For how equity extraction works on an investment property, see Lendmire’s guide to cash-out refinance on an investment property.
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References
1. Montgomery County MC311, Department of Finance
2. Starfield & Smith, Best Practices Calculating Maryland Recording Taxes
3. Ballard Spahr, Navigating Transfer Tax and Mortgage Recordation Tax in the DMV Area
4. LegalClarity, Maryland Recordation Tax Exemptions
5. Prince George’s County Finance Affidavit Instructions
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: DSCR Cash-Out Documentation When a Lease Expires During Refinance · How to Clear a Solar Lien on Your First Rental Before a DSCR Cash-Out · How to Keep a Standing HELOC on a Rental to Fund the Next Deal
Guides: Investment Property Cash-Out Refinance in Maryland
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.