It’s possible to keep refinance costs down, at least initially, by opting for a no-closing-cost mortgage.

In a typical refinancing, a borrower brings a check to the closing table to cover refinance costs such as the appraisal fee, title search, title insurance and application fee. With a no-closing-cost option, there’s no need to pay for those items at closing.

But taking that route means a higher interest rate for the term of the loan. In effect, you borrow the closing costs by financing them into the loan.

Watch those fees

Closing costs vary from state to state, but have been rising. The 2010 Closing Costs Study found that the origination and third-party fees on a $200,000 mortgage averaged $3,741 this year. That means closing costs are more than 36 percent higher than in 2009, when they averaged $2,739.

For those who don’t have the money to pay fees upfront, no-closing-cost mortgages can be an appealing way to cut refinance costs. It can be particularly important given the current refinance situation, where borrowers typically need to put a minimum of 20 percent down in order to qualify for a mortgage.

The refinance calculator can help you determine the actual savings and costs of refinancing your current mortgage.

Time is money, of course

Taking your current situation and long-term plans into account is crucial when considering refinance costs.

For instance, if you plan to stay in your home for five years or less, a no-closing-cost mortgage might be a good option. It can take more than five years to recover closing costs with a traditional mortgage, so paying the higher rate over a few years but saving those costs now could end up being cheaper for you.

You also might want to keep the extra cash on hand if you need the money to make renovations on your current home.

On the other hand, a no-closing-cost mortgage means paying a higher interest rate for the life of the loan. If you plan to stay in your home for an extended period of time, not paying closing costs and accepting a higher interest rate could cost you far more in the long run.