The Truth About “No-Cost” Refinances in Tennessee

You’ve probably seen ads or mailers promising a “no-cost refinance.” It sounds like the perfect deal—you lower your rate, skip the closing costs, and start saving money right away. But before you jump in, it’s important to understand what “no-cost” really means and how closing costs actually work on most refinances.

What “no-cost” really means

When a lender advertises a no-cost refinance, it doesn’t mean the costs disappear. It just means the lender is covering them for you, usually in exchange for a slightly higher interest rate.

Think of it as a trade-off. Instead of paying the $3,000–$5,000 in typical closing costs out of pocket, you might take an interest rate that’s about a quarter of a percent higher. The higher rate allows the lender to earn enough over time to offset those upfront fees.

The costs don’t vanish—they’re simply built into your loan through lender credits or a higher rate.

What most borrowers actually do

For the majority of refinance loans, closing costs are simply rolled into the new loan balance. That means you don’t have to bring cash to the table at closing unless you choose to.

For example, if your current loan balance is $300,000 and total closing costs are $4,000, your new loan might be $304,000. You start fresh with your new rate, and nothing is due upfront.

This setup is completely normal and gives borrowers flexibility. If you want to pay the costs at closing instead to keep your balance slightly lower, you can—but most people prefer to roll them in.

When a no-cost refinance makes sense

There are still situations where a no-cost refinance can be smart, especially if you plan to sell or refinance again in a few years.

If you’re saving $250 per month and expect to move in two years, you’ll save $6,000 during that time. Avoiding upfront costs means you pocket the monthly savings without worrying about recouping fees before you move.

It can also make sense if you’re refinancing mainly to remove PMI, shorten your term, or consolidate debt—but you’d rather not dip into your savings right now.

When it doesn’t make sense

If you plan to stay in your home long-term, paying a slightly higher rate just to skip the costs upfront may cost more overall. A higher rate lasts for the life of the loan, while standard closing costs are a one-time expense.

For instance, if you could choose between a 6.25 percent “no-cost” option or a 6.00 percent rate with $3,500 in rolled-in costs, the lower-rate option will usually save you more if you stay in the home for five years or longer.

The key: know your break-even point

The easiest way to compare a “no-cost” refinance with a standard one is to calculate your break-even point—the number of months it takes to recover your upfront costs through monthly savings.

If your break-even is shorter than the time you expect to keep the loan, paying costs (even rolled in) is typically the smarter move. If you expect to refinance again or sell before then, the no-cost option can make more sense.

A good local lender will help you compare both options side by side so you can make a confident decision.

Why local advice matters

Online refinance ads rarely explain these details and often sell your information to multiple lenders, leading to a flood of calls and emails. Local professionals take the time to show you exactly how your options compare and which one truly benefits you.

That’s what Home Loan Locals was designed for. It’s a free service that connects Tennessee homeowners with one or two trusted local lenders who’ll explain how closing costs, lender credits, and rates all fit together—without the high-pressure sales approach.

The bottom line

A no-cost refinance isn’t automatically good or bad—it’s just another way to structure the numbers. The key is understanding how long you’ll keep the loan and whether a slightly higher rate makes sense in your situation.

If you’re curious about how a no-cost refinance might work for you, visit HomeLoanLocals.com. You’ll be connected with one or two top-rated Tennessee lenders who’ll review your options clearly, show you both scenarios, and help you decide what’s best—without the spam or the pushy sales calls.