Is there such a thing as a no-cost or no-fee loan?

As the other answers have shown, mortgages are generally not truly "no cost/fee". Often times, though, an equity loan or line of credit is a useful alternative to traditional mortgage financing because, as the equity lending market is extremely competitive with regard to closing costs, many lenders actually pay for all of the closing costs. Rates for equity loans can be substantially higher than mortgage rates, though. In essence, pay it in closing costs or pay it in interest over the life of the loan.

There are no-cost loans, but those "no-costs" are limited usually to the closing cost fees of the bank. Some banks will basically pay the closing costs for you and not charge it to the loan. However, you are generally left paying the mortgage tax and recording fees for these loans. So while you don't pay bank fees, it isn't quite a no-cost or no-fee loan.

No. While some lenders occasionally promote "no-cost" loans, banking regulators have cracked down on these misrepresentations. Advertised "no-fee" loans may actually cost the borrower more over the long term because these costs are often rolled into the new note through higher interest or more principal.

A typical no-fee loan is one where the points charged and all fees are included in the loan principal, meaning that the borrower does not pay these expenses at the close of escrow, but instead ends up paying on them over the life of the loan. The loan is called a no-fee loan because the borrower is not charged any fees up front.

All loans have costs. The banks and brokers have to pay wages, have a profit margin, and pay for the cost of money as part of doing business. It always seems that the radio and TV ad proclaiming that the advertised loans are "no cost" are always offered by a company that must have huge advertising budgets. Obviously they are making their money from the borrowers costs.

As has been described accurately, "no out-of-pocket" costs are very typical - simply being added to the loan amount and amortized over the life of the loan. "No lender fee" loans are also offered, with the broker/lender costs paid for by a slight increase in the rate and covered by an investor rebate. "No closing cost" loans are usually similar to the no lender fee loans, with the rate just hiked a little higher so that the investor rebates cover even the 3rd party costs.

Some loans and credit lines are true "No Cost" loans because the lender pays all of the costs for the borrower - and the lender amortizes them over the life of the loan paying them with a portion of the margin. As long as the borrower leaves the account open for enough time for the lender to recover the costs, then it is true that the borrower pays no closing costs at all. However, if the loan is closed prematurely (usually less than 36 months), then the lender may charge a "3rd party fee recapture charge" to the final loan payoff.

The best rule of thumb is this: If you only expect to have the loan a short time (less than 2 years), go for the higher rate and let the lender pay your closing costs. If you expect to have the loan for a longer period (over 5 years), opt for the lower rate and let your closing costs amortize with your loan payments. Typical breakeven point for standard closing costs is about 3 years.

Always ask for a preliminary (non-binding) Good Faith Estimate before committing to any lender. By law they must disclose or estimate all fees - including 3rd party fees for appraisal, title, escrow, etc. - as part of the Good Faith disclosure. No reputable lender will send you a patently false GFE that shows zero loan costs.

Also - if someone is quoting you a "no cost loan" - look at the APR. If the APR is more than 2/10ths of a percent higher than the nominal rate (rate you are quoted), then there are definitely closing costs associated with the loan.