At one time or another, most home owners will look into refinancing their existing mortgage. There are many things to consider when doing this. Interest rate is obviously a major concern, but closing costs should also be considered. Weighing all of one's options when refinancing is a wise choice.
A slight increase to the interest rate may be cheaper than all those fees. The higher rate compensates the lender for the fees that they have paid for you. Most of the time, the rate is between a quarter and a half percent higher than if you paid the closing costs. You should keep in mind that even if you do not have cash up front, most lenders will finance the closing costs in with your loan for you.
If you are planning to own the property less than five years, or if you are short on cash to close on a purchase, then a no cost loan could be right for you. It is easy to calculate your break-even point by simply looking at the difference in your payment for a no cost loan vs. a loan with costs and then dividing that difference into the amount of non-recurring closing costs that you would have to pay at closing. The result of this calculation will tell you how many months it would take to re-coup the expense of the closing costs so you can then compare that time frame to the length of time you anticipate living in the property.