What is a "no cost" loan?

What is a "no cost" loan?

Ron Goodlin (Mortgage Banker and Broker, The Goodlin Group) gives expert video advice on: Is it possible to pay off my mortgage loan early?; Is there a penalty for paying off my mortgage loan early? and more...

No cost loans are very popular for re-finances after you've already owned the home. I'll give you an example. Let's say, a year ago, we closed a loan at 6%. Today, at the market rate, I could actually get you 5.5% interest rate. However, to get you that "free loan" I'm actually going to bump your rate up to 5.75% and then use that money (which is commission that the bank is going to pay me, from 5.5% to 5.75%) to pay for all of your closing costs. So for you, it's a no closing cost deal yet you are also going to save .25% in rate on your mortgage; from 6% to 5.75%, for free.