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A true no-cost refinance means you pay no money upfront and neither your loan amount nor your interest rate is increased to build any costs into your new loan. To calculate a break-even point, divide the anticipated total cost of your refinance by the monthly savings on your loan payment.
Lenders offer borrowers no-cost refinancing options to reduce the amount of money needed upfront. According to the Federal Reserve, lenders cover refinancing costs in exchange for a higher interest rate or the refinancing costs are added to the refinanced loan. Both options result in higher long-term mortgage costs than would be the case if you paid for the refinancing out of pocket.