Mortgage Tax – Taxing your Home Loan

In some U.S. states you are required to pay a tax on closing a mortgage. This is one of the most important closing costs for real estate purchases. For this reason it is a one-time payment when closing the mortgage. There are many names for this, from mortgage recording tax, to just simply mortgage tax. It is the buyer of a home who is required to pay a mortgage tax. Mortgage taxes can also vary within states, counties, and across cities.

Mortgages are complicated. We explain them easily

• Mortgage Explained – Meaning, How-to, Guide

What is a Mortgage Tax

This tax exists to document the transaction which takes place when closing a mortgage. It is constructed of a percentage of the amount of debt being secured as a result of the creation of debt. It is a state-based tax, and is paid towards the locations where the mortgage is documented and recorded. In Minnesota, there is an additional tax in some counties, the “environmental response fund tax”. The 7 states which require a mortgage tax are Alabama, Florida, Kansas, Minnesota, New York, Oklahoma, and Tennessee.

Mortgage tax is not the same as property taxes, or as mortgage interest.

How is Mortgage Tax Calculated?

Each state has a mortgage tax rate. The mortgage rate is easily calculated by multiplying the rate in the location of the property (make sure to take into account state and county regulations!) by the amount which is in the mortgage. Also, make sure to take into account that mortgage taxes are rounded up.

E.g. in New York State, there is a mortgage tax rate of 1.05%. That means closing a mortgage in New York costs USD$7.500, given the rate of 1.05% and a mortgage worth USD$500.000.

Mortgage Tax Payment = Mortgage Tax Rate x Total Mortgage Amount

It is possible to reduce the mortgage tax by “assignment transferring”. In a nutshell, the loanee takes the assignment of loaning the mortgage to a new company, here the original tax is transferred, and therefore does not have to be paid.

Want to find out more about saving on your real estate tax bill?

• Real Estate Tax Deductions USA – How to Save

List – Mortgage Taxes by State

There are seven states which require a mortgage tax. These may be called different names, but are all the same construct.

New York

• Name: Mortgage Tax
• Rate: 1.05%
• Exemption: Possibility of $30 if the relevant “property is, or will be, improved by a one or two family dwelling.”

Alabama

• Name: Mortgage Tax
• Rate: 0.15% (.15 per $100, total mortgage amount rounded up to the next highest $100.00)

Oklahoma

• Name: Mortgage Tax
• Rate: 0.10% (+ $5 certification fee)

Minnesota

• Name: Mortgage Registry Tax
• Rate: 0.24% (+ 0.01% Environmental Response Fund Tax in Hennepin and Ramsey Counties)
• Exemptions include contracts for deed, certain agricultural mortgages, marriage dissolution decrees, and certain low- and moderate-income housing mortgages.

An oceanside house surrounded by palms and beach in Florida.

Florida

• Name: Documentary Stamp Tax
• Rate: 0.35%
• Late penalty: 10% + increasing monthly interest rate

Tennessee

• Name: Mortgage Tax (part of “recordation tax” which includes realty transfer tax)
• Rate: 0.115% (does not apply to the first $2.000 of the debt)

Kansas (Until 2019)

• Name: Mortgage Registration Tax
• Rate: 0.26%
• Since 2019, you no longer pay mortgage registration tax in Kansas