Do You Pay Transfer Tax on a Refinance?

Refinancing your mortgage can help you secure a lower interest rate reduce your monthly payments or tap into your home equity. But before you decide to refinance, it’s important to understand if you’ll need to pay any transfer taxes. In this comprehensive guide, we’ll explain everything you need to know about transfer taxes and refinancing.

What is Transfer Tax?

Also known as deed transfer tax, mortgage recording tax, or real estate conveyance tax, transfer tax is a fee imposed when real estate changes ownership. The tax rate and rules vary by state and locality

For example, in New York State the transfer tax rate is $2 for every $500 of the home’s sale price. So if you sold a $500,000 home in New York, you’d pay $2,000 in transfer taxes ($500,000 / $500 x $2). The tax is paid when the deed is recorded with the county clerk’s office.

Transfer taxes are different than property taxes, which are annual levies to fund local governments. Transfer taxes are a one-time fee paid when a property’s title legally transfers.

Do You Pay Transfer Tax When Refinancing?

In most cases, refinancing your mortgage does not trigger transfer taxes. That’s because you aren’t technically transferring ownership when you refinance. You’re simply swapping out your existing mortgage for a new loan.

However, there are a few scenarios where you may need to pay transfer tax on a refinance:

• Cash-out refinance – If you take cash out during a refinance, you may owe transfer taxes on the cash you pull out.

• Adding or removing a name – If you add or remove someone’s name from the property title during a refinance, transfer taxes may apply.

• Some states and counties – A handful of states and counties charge transfer taxes on refinances. For example, Hawaii charges a mortgage recording tax on refis.

So in most cases you can refinance without incurring transfer taxes. But it’s smart to double check the rules based on your specific situation.

How Much Are Transfer Taxes on a Refinance?

Transfer tax rates on a refinance vary significantly based on your state and county. Here are some examples:

• New York State – $2 per $500 of loan amount
• Texas – No tax on refinances
• Florida – 70 cents per $100 of loan amount
• Hawaii – 10 cents per $100 of loan amount

As you can see, New York and Florida have particularly high transfer taxes compared to states like Texas that don’t levy any tax.

Within each state, counties and cities may add their own transfer taxes on top of the state tax. For instance, New York City tacks on an additional 1.25% tax.

To estimate your potential transfer tax liability, search for your state and county’s latest transfer tax rates. Multiply the rate by your new loan amount to calculate the total tax.

How to Avoid Transfer Taxes on a Refinance

If you want to avoid paying transfer taxes, here are some tips:

• Choose a lender in a no-tax state – Lenders in states with no transfer taxes can sometimes help you avoid the fees, even if you live in a high-tax state.

• Refinance for the same or lower amount – Taking cash out increases transfer taxes, so stick with the same or lower loan amount.

• Keep the title names the same – Don’t add or remove anyone on the title to skirt transfer taxes.

• See if your lender will cover the cost – Some lenders will pick up the tab for transfer taxes as an incentive to use them.

• Compare quotes – Get multiple refi quotes to find the best overall value, including fees.

With some planning, it’s often possible to refinance without incurring extra transfer taxes. But make sure to check your state and county’s specific rules first.

Frequently Asked Questions

Below we’ve answered some of the most common questions about transfer taxes and refinancing:

Do you pay transfer tax when refinancing with the same lender?

Typically no, as long as the title holders remain the same and you don’t take cash out. Refinancing with your existing lender is generally exempt from transfer taxes.

Does a quitclaim deed trigger transfer tax?

In most cases yes. A quitclaim deed transfers ownership, so it would be subject to applicable transfer taxes. However, adding or removing a spouse may be exempt.

Can closing costs be included in refinance loan amount?

Yes, closing costs like title fees and transfer taxes can often be rolled into the new loan amount. But this increases your principal and interest payments.

Do all states have transfer tax?

No. Roughly half of U.S. states levy some type of transfer tax, while the other half do not. States without transfer taxes include Texas, Wyoming, and Alaska.

Can you negotiate transfer taxes?

Unfortunately transfer tax rates are set by state and local governments, so there is no room for negotiation. Your only options are avoiding taxable situations or finding a lender who absorbs the cost.

The Bottom Line

Refinancing offers many benefits, like lowering your rate and payments. But before pulling the trigger, make sure to investigate if you’ll owe any transfer taxes based on your specific situation. Planning ahead helps avoid surprise fees at closing.

While transfer taxes may apply in some cases, it’s often possible to refinance without incurring extra costs. By understanding the rules in your area, choosing the right lender, and structuring your refi wisely, you can reap the rewards of refinancing without the headache of transfer taxes.