I just locked in my rate today at 4.875%.
So is no closing cost really mean no out of pocket expense at all or is it still a few hundred dollars?
I've never had one of these "no cost" mortgages. However, based on my conversations with a couple of brokers "no closing cost" mortgages are not right nor practical for everyone. People that have a competitive rate already and a lower than average mortgage typically don't benefit.
The way I understand it, the broker gets a rebate as a percentage of the mortgage (aka "negative points") by selling a higher than market rate loan. Every closing has certain fixed costs like appraisal, closing fee, courrier fee, title insurance, tax stamps, doc fee, etc etc etc. These fees are fixed expenses to the loaning agent and typically add up to a certain dollar amount, usually $2000-$4000. Therefore your mortgage balance has to be large enough so that the rebate covers the fixed costs and leaves some for the broker to get paid.
Also note that tfb probably carries his own escrow, eliminating this part of the closing costs for him. Carrying your own escrow* can also cost you a 1/8 to 1/4 of a point on your rate with most lenders--it all depends however. Note that you will (you better!) get back whatever you currently have in escrow when your original loan is paid off in a refinance situation. My experience is this can take a couple months. So you have to either bring that new escrow cash with you to closing (in addition to the partial month's interest payment**), or roll it into the loan and get a nice escrow refund bonus in a few months.
*Why carry your own escrow, you ask? Maybe you're OCD and you like to control it and make sure the service company doesn't screw up and miss a payment. Or more likely, you want to earn the interest on your own escrow account. Also, you can stagger tax payments for boosted income tax deductions certain years.
**Recall you will get to "skip" that next month's payment because mortgages are structured to accrue interest through the month and then you pay that accrued interest and associate principal amount with your payment. Hence, the pseudo "grace period" where they give you to the 14th or so to make your payment.
Although our intellect always longs for clarity and certainty, our nature often finds uncertainty fascinating.