What is a no-closing-cost mortgage?

A no-closing-cost mortgage allows you to finance or roll your closing costs into the loan rather than paying them upfront. The lender either adds the closing costs to the loan balance or charges a slightly higher interest rate in exchange for covering your closing costs (called a lender credit). While attractive for buyers short on cash, you will pay more over time either through a larger loan balance or higher rate. A no-closing-cost loan is most beneficial if you plan to sell or refinance within 5 years before the higher rate or larger balance erases the savings of not paying upfront.