If you plan to be in the home only a short time, a “no cost” loan makes sense. If you plan to keep the home a long time, a “no cost” loan will add considerably to your budget because of the higher interest rate.

QUESTION: With interest rates so low, I am considering refinancing my mortgage. I have a 4.8 percent interest rate and would like to get it down under 3 if I can. What is a “no cost” refinance?

ANSWER: With rates hovering around 3 percent, this is definitely the time to refinance if you can. A “no cost” refinance is one in which the lender either waives or pays all fees connected with the loan with some exceptions. The trade off, however, is usually a higher interest rate which makes the loan expensive for borrowers over the long haul.

If you plan to be in the home only a short time, a “no cost” loan makes sense. If you plan to keep the home a long time, a “no cost” loan will add considerably to your budget because of the higher interest rate.

Don’t confuse a “no cost” refi with a “no cash” refi. They are not the same thing. No cost means there is no charge or the charge is paid by the lender. No cash means the borrower has no out of pocket expenses to pay at closing. Instead, all expenses and fees connected with the mortgage are rolled into the loan amount. But the borrower still pays for these costs over the mortgage term.

Here are some of the costs you can expect to be covered in a “no cost” refi: All fees paid directly to the lender, such as points, origination fee and application fee are covered by the “no cost” provision.

Also covered are fees paid to third parties for services required by the lender, such as title insurance (lender policy), appraisal fee and legal fee. One exception may be per diem interest. This is the interest the lender charges between the closing date and the first day of the following month when your regular monthly mortgage payments begin.

Other costs that may not be covered by the “no cost” provision include escrows for taxes and insurance. These are borrower funds set aside to insure payment of the borrower’s obligations. Other costs that may not be covered by the “no cost” provision include the homeowner’s title insurance policy and transfer taxes charged by governmental entities.

Linda Goodspeed is a longtime real estate writer and author of “In and out of Darkness.” Email her at: lrgoodspeed@comcast.net.