Reviewed by Jeff Shin, NMLS #1041652. Updated .
Also called: no-cost refinance, no-closing-cost mortgage.
Where the costs go
- A higher rate and a lender credit. You accept a higher interest rate, and the lender gives you a credit that covers the closing costs. The more credit you take, the higher the rate. It shows as a negative amount on the Lender Credits line in Section J, page 2 of your Loan Estimate. A higher rate means you pay more over the life of the loan.
- Costs added to the balance. The closing costs are financed into the new loan. A larger balance means a higher payment and less equity.
Either way, someone pays the costs. The CFPB is direct about it: the services that go into making a mortgage still cost money.
How to compare the trade-off
Ask for Loan Estimates on the same loan, on the same day: one where you pay the closing costs, and one with a lender credit that covers them. Compare the rate, Section J, and the total closing costs. If you expect to sell or refinance again before the lower rate pays back the costs, the credit can come out ahead. If you plan to keep the loan for a long time, paying the costs often does. The refinance break-even calculator shows where that line falls for your numbers.
On an FHA streamline
HUD does not allow closing costs to be added to the new loan balance on an FHA streamline refinance. A “no cost” FHA streamline is therefore the higher-rate version: the lender covers the costs out of a higher interest rate.
Related terms
Related on BankPricer
Sources
Definitions on this page are summarized from the agencies that set the rules. Lenders can add stricter requirements. Checked October 8, 2026.
Not sure which of these applies to you?
That is usually the actual question. Send the situation rather than the product name — purchase or refinance, primary or investment, price range, and timeline — and you get the structures that fit, with what each one costs.