A down payment reduces the size of the loan you need. The larger the down payment, the less principal and interest you’ll have to pay back. Many lenders require mortgage insurance when your down payment is less than 20%. This insurance repays the lender if you default on your loan. You can cancel the insurance when your equity in the property reaches 20%. A home equity loan, or second mortgage, is an additional loan collateralized by your home. Your equity is the current value of your home minus the money you owe on the property (including home equity loan balances, if any). The two contributors to your home equity are: The principal portion of your monthly mortgage payments, which in the early years is small compared with your interest charges Any increase in the price your home could fetch if you put it up for sale For example, suppose your home can sell for $300,000, and you owe $220,000 on your mortgage. Your current equity is ($300,000 – $220,000), or $80,000. You can usually cash out up to 80% of your equity through a home equity loan, as lenders usually want a cushion against unforeseen expenses or sudden decreases in the home’s selling price.