Private mortgage insurance (PMI) has historically been applied to borrowers with loans with down payments of under 20 percent. Lenders requested it as a way of recouping foreclosure costs if the borrower failed to make payments. In essence, people who cannot make a 20 percent or greater down payment are thought of as greater risks, and they are expected to pay for the privilege of putting down less money. The lender not only retains the property if the borrower defaults, but the insurance payoff helps them recoup any losses or resale costs for that property.

But as more homeowners have been unable to make that 20 percent, and PMI adds to their overall home expenses, Congress came to the rescue in late 2006. In 2007, PMI premiums were declared tax deductible. That means people who can't pay 20 percent should talk to their tax advisor about whether paying PMI might be a better idea than other alternatives, such as setting up a piggyback loan arrangement.

Don't expect your lender to do you a favor and automatically drop your PMI when your equity has reached 20 percent. When it comes time to cancel PMI, it's going to be your job to ask for it and your lender might respond with some pointed questions. Make sure first of all that you've never been late with a payment because the bank will hold that over your head to justify that they need that added protection. It's also possible that your lender may demand proof that your property value has risen over time and that you don't have a second mortgage on the property.