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3 tips for cutting your mortgage costs in 2012

If one of your financial goals is to save more money in 2012, you can't go wrong by slashing your mortgage costs.

After all, if you're a homeowner, your mortgage likely represents your single-biggest expense, eating a large chunk of your paycheck every month.

Fortunately, there are several ways to cut your mortgage costs and put more cash back into your bank account.

Try these three strategies to lower your mortgage expenses in 2012:

1. Shop around to refinance your home loan

If you have a mortgage and are paying more than 5 percent on your home loan, consider refinancing. A mortgage refinance could save you thousands of dollars a year, especially if you have decent credit.

A 2011 survey from CreditSesame.com found that there were 12 million credit-worthy Americans who were overpaying their mortgages by an average of $436 a month. By refinancing, those homeowners could save about $52,000 over 10 years.

Unfortunately, too many people have been reluctant to even try to refinance, for fear of getting rejected by a bank. Even those who do take the time to apply for a refinance often simply go to their existing mortgage lender--failing to shop around.

But that's a big mistake. A recent study in the Journal of Real Estate Finance and Economics found that women are especially guilty of not comparison shopping for the best mortgage rates. As a result, women tend to pay higher mortgage rates because "they are more likely to choose lenders by recommendation while men tend to search for the lowest rate," the study's authors said.

Don't make the common refinancing mistake of failing to shop around, automatically going with your current lender. Today you can easily compare current mortgage rates and get quotes from several mortgage lenders through sites like HSH.com and MoneyRates.com.

HSH.com's refinance calculator can show you exactly how much money you could save with a refinance.

2. Check your credit reports

Before you apply for a refinance, be sure to check your credit reports. By law, every 12 months you can get one free copy of each of your credit reports from Experian, Equifax and TransUnion. Those free credit reports are available online at AnnualCreditReport.com.

Reviewing your credit reports is critical because you don't want any mistakes to cause you to pay a higher rate than necessary for your mortgage. And unfortunately, errors in credit reports are all too common. One study from Consumer Reports found that 70 percent of all consumer credit reports contain mistakes.

So check your credit rating and take action to immediately dispute any erroneous information. Under the Fair Credit Reporting Act, if you dispute something in your credit report that is outdated, inaccurate or unverifiable, then that information must be removed within 30 days.

3. Do basic home maintenance and minor upgrades

During the housing boom, when lending standards were far more lax, it wasn't uncommon for mortgage lenders to do "drive by" appraisals of homes, or to simply grant home loans based on online appraisals of properties.

Those days are long gone. Before approving a mortgage nowadays, a lender will surely send out an in-person appraiser to do a detailed inspection of your home.

To get the most favorable valuation of your residence, there's no need to do a major home addition or pay for expensive renovations. Instead, focus on three low-cost solutions: cleaning, basic home maintenance and minor upgrades.

Create a great first impression by cutting your front grass, de-cluttering all rooms and thoroughly cleaning your home. If your last paint job was done back in the 1990s, a fresh coat of paint (in a neutral color) wouldn't hurt either.

Also, attend to things like leaky faucets or problem toilets. Consider changing bathroom rugs and shower curtains for a fresher appearance. If your kitchen is older, try installing new handles and doorknobs on cabinets and doors to create a more updated look.

All of these quick fixes can help your home achieve a higher appraised valuation.

A higher property value aids your mortgage refinancing efforts in several ways. For starters, lenders will use your property appraisal to calculate your loan-to-value (LTV) ratio. Additionally, if your loan amount is 80 percent or lower than your current property value, you won't have to pay Private Mortgage Insurance.

But even without an 80 percent LTV ratio, realize that mortgage lenders have other options, such as 90 percent LTV loans, which carry favorable interest rates and can also save you money on your current mortgage rate.

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