PMI stands for private or personal mortgage insurance. It is typically required for those who put less then 20 percent down when purchasing a new home. This type of insurance  actually helps new homebuyers obtain a mortgage when they otherwise might not be able to do so because of an additional risk of default or a low loan-to-value ratio. Instead of requiring 20 percent down on the purchase of a home, the bank will allow a loan with less money if it is insured against the loss through the purchase of PMI. Rates vary, but expect to pay roughly 5 percent of your monthly loan amount for a modestly priced home.

When it comes to eliminating PMI, read your contract carefully. Typically you can petition for PMI to be removed from your monthly payment once you have paid 20 percent of the loan amount, although some contracts allow you to have 20 percent equity instead. In either case, you will need to put the request in writing and document carefully.

The Homeowners Protection Act of 1998 requires lenders to drop PMI once the loan to value ratio reaches 78 percent of the original loan — not market value. If you make minimum monthly mortgage payments, that will typically take 10 to 15 years on a fixed-rate, 30-year loan.

Want to request that PMI be eliminated from your home loan?

1 Read your contract carefully. If you believe your loan is below the 80 percent loan-to-value ratio, then contact your lender and request to eliminate PMI.

2 If Fannie Mae or Freddie Mac underwrite your loan and your local area has experienced appreciation in the local real estate market resulting in your loan value being under 80 percent of market value, then it may be worth your time to request elimination of PMI.

3 Refinance. There are many extenuating circumstances to consider before taking this option, but always be sure to request elimination of PMI when refinancing.