Perhaps you’re one of the over 1 million homeowners who might benefit by refinancing at today’s lower mortgage rates. But like many Americans, you may not have the available cash to pay for upfront fees. Maybe you’ve heard about “no-cost” refinancing, but you’re not really sure what it’s all about.

A no-cost home loan refinance (also called a no-fee refinance or no-cost mortgage refinance) is a loan transaction in which all your settlement or upfront costs are paid for by the lender or broker. These costs include application, title/escrow, credit check, appraisal, loan origination points, and other processing and underwriting fees. Normally, these out-of-pocket expenses amount to more than $1000. So potentially, you can “save” this money.

However, a no-cost refinance is not a true no-cost loan. The bank or lender may take these fees, bundle them together and add them to your total loan amount – increasing how much you have to pay back. Or, the bank or lender will increase your interest rate on a no-cost refinance. Usually, this rate increase is between a quarter and a half of a percentage point higher than if you had paid the fees upfront. Therefore, regardless of whether the lender increases your total loan amount or increases your interest rate, you’ll be paying for these closing costs over the life of the loan.

So, is a no-cost home loan refinance the right choice for you? It may be if:

1. You don’t have the money readily available to pay all the fees upfront.

2. You don’t want to spend your available cash right now due to other factors.

3. You plan to move within a few years.

4. You refinance often to take advantage of lower interest rates.

However, if you plan to stay in your home and not refinance again for five or more years, a no-cost refinance is probably not for you since you’ll likely pay more over time than what the original upfront costs were in the first place.

You should also note that no-cost refinances will vary by lender. Some lenders may pay for all costs, while others may still charge you for certain fees, such as title, escrow, and appraisal fees.

No-cost refinances are neither good nor bad. You just need to determine what your unique financial situation is, what the upfront fees are, and how the increased loan amount and/or interest rate will impact you. Do your research, crunch the numbers and talk to an experienced mortgage professional to determine if a no-cost home loan refinance is the right decision for you.