As interest rates continue to stay at record lows, many individuals are taking this opportunity to refinance their existing home loans. In comparing their costs among potential lenders, one large cost remains constant: recordation taxes. For Virginia properties, they are calculated based upon the amount of your loan. But what many people don't know is that a provision exists in the Code of Virginia that can offer relief from that cost, if certain circumstances are met.
The provision is §58.1-803(D), which states in pertinent part that "On deeds of trust or mortgages, the purpose of which is to refinance or modify the terms of an existing debt with the same lender, which debt is secured by a deed of trust or mortgage on which the tax imposed hereunder has been paid, the tax shall be paid only on that portion of the amount of the bond or other obligation secured thereby which is in addition to the amount of the original debt secured by a deed of trust or mortgage on which the tax has been paid...." To state the statute in another way, if you are refinancing your existing home loan with the same lender that presently holds your loan then there will only be recordation tax on the amount that exceeds the original amount of the loan.
For example, say you have a loan with Jones Branch Bank and its original principal balance was $300,000. You decided that you want to refinance your loan and you do so with Jones Branch Bank as the lender for your new loan. Your new loan has a principal balance of $250,000. What would be the amount you would be paying recordation taxes on? $0! That would mean you would have to pay only the Clerk of Court's recordation & processing fees, which are both constant and minimal regardless of the amount of the loan.
Using the same example, what if your new loan was $320,000 instead of $250,000? In that case, you would pay recordation taxes on $20,000 (new loan amount ($320,000) - original loan amount ($300,000) = $20,000).
This is just one of many elements to consider in making your decision regarding your refinance, but it can be an important element in reducing your cost. The key again is that it must be the same lender. Without that criteria met, the statute cannot be invoked.
Feel free to contact any of the real estate attorneys, paralegals or legal assistance in our real estate department for further clarification on this issue or other questions you might need answered regarding your future refinance.
To view the referenced code section, the Code of Virginia, and much more, check out the Virginia General Assembly's Legislative Information System at http://lis.virginia.gov/lis.htm
Happy Holidays from all of us at Pesner Kawamoto Conway!
