Most home buyers need mortgage insurance because 20 percent of the sale price on a home is a lot of money; for instance, that's $30,000 on a $150,000 home. Home buyers must maintain the premiums until they cross that one-fifth-of-principal threshold, a process that can take years in longer-term mortgages.

Strategies for avoiding mortgage insurance
A home buyer has to keep paying mortgage insurance premiums until the principal balance is paid down to a certain percentage of the home's original value. There are a couple of ways to avoid mortgage insurance. Each has its own benefits and drawbacks.

Pay more interest
Some lenders will waive the mortgage insurance requirement if the buyer accepts a higher interest rate on the mortgage loan. The rate increase generally ranges from three-quarters of a percentage point, or 75 basis points, to a full percentage point, depending on the down payment. Borrowers can benefit from this because mortgage interest is tax deductible whereas mortgage insurance premiums aren't. But they'll end up paying more interest over the lives of their loans due to the higher rates.

Use an "80-10-10" loan
This program involves getting two loans. The borrower gets a first mortgage equal to 80 percent of the sale price, a second mortgage for another 10 percent of the price and puts the remaining 10 percent down at closing. The second mortgage has a higher interest rate. But since it applies to 10 percent of the total loan, the monthly payments on the two mortgages can still be lower than the monthly payment on one home loan with mortgage insurance. Plus, interest on the second mortgage is tax deductible. The 80-10-10 loan isn't the only plan available; borrowers can get 80-15-5 loans or other combinations.

By the numbers ...
If we compare the purchase of a $150,000 home under the "80-10-10" plan to a standard fixed mortgage including mortgage insurance, we find that the former is $35.36 cheaper each month.

Here's how it works: Under the "80-10-10" plan, the 10 percent down payment on a $150,000 house is $15,000. The first mortgage is $120,000 at 7 percent, which comes to a monthly payment of $798.36. The second mortgage for $15,000 has a 9 percent interest rate, making a monthly payment of $120.69. The total monthly payment for both loans is $919.05.

With a $15,000 down payment, one mortgage of $135,000 at 7 percent has a monthly payment of $898.16, plus mortgage insurance of $56.25, making a total payment $954.41.