No Closing Cost mortgage loans typically exchange a slightly higher interest rate for the lender paying part of or all of your closing costs. This is one way to keep the same loan balance when you refinance without digging into your savings. These can also be arranged on a purchase loan. This is sometimes called a Lender Credit or Lender Assist.
Is a No Cost Loan the Right Fit for Me?
The key is no cost loans have a break even point. When you refinance with no costs the higher interest rates gives you a slightly higher monthly payment. If you are likely to have this loan for a long time to come, a regular refinance will save you money over the life of the loan. Otherwise, if a sale in the next few years is possible, or if you just do not want to increase your loan balance, the no closing cost loan may be the right fit for you. These loans are often offered as a gimmick but it is important to compare and see which option really saves you the most money. Factors like loan term and amount can make a difference.