A refinance where the lender covers your closing costs in exchange for a slightly higher interest rate. "No-cost" is a bit misleading — you're paying through the rate over time.
A no-cost refinance isn't truly free. The lender absorbs your closing costs at the time of refinance — in exchange, you accept a slightly higher interest rate than you'd get on a standard refinance. The lender recovers their cost over time through the interest you pay.
It can be a smart move if: you might refinance or sell again within a few years (so paying upfront closing costs wouldn't pay off), or you don't have cash on hand and don't want to roll closing costs into the loan balance.
It's a worse deal if: you'll stay in the loan for many years, because the higher rate compounds over time and ends up costing more than just paying the closing costs upfront would have.
The smart approach: ask for both quotes side-by-side. Calculate the break-even on the rate differential vs. paying closing costs out of pocket. Pick the math that fits your timeline.
Example
Standard refi: 6.0% rate + $7,000 closing costs. No-cost refi: 6.375% rate, $0 closing costs. On a $320K loan, the standard refi saves $75/month over the no-cost version. Break-even on the upfront $7,000 = 93 months. If you'll move in under 7 years, the no-cost wins.
Also known as
no closing cost refinance, lender-credit refinance, zero-cost refi