No Cost Loan - This is a fairly misleading term used to describe any loan where there are no actual costs passed on to the borrower. The misleading part is that although there are no costs "out of pocket" or "rolled into the loan balance," costs such as underwriting fees, appraisals, title work and commissions, all have to be paid from somewhere. In these cases, the costs are paid out of an inflated interest rate. In some cases, it may be worth it, but in others, a borrower may save only $2000 at closing and find himself paying an extra $100 or more per month in interest for the 30-year life of the loan. It pays to do the math when considering a "No Cost" loan.