gift of money and addition to house

[farmgirl20]

Ok folks,

We are expecting to receive $35,000 from my mother. We have $33,000 in all other debts except for the mortgage. The need to add on to our house is also real because we are bulging at the seams and it will fix some insulation/structure problems that cannot wait much longer. So do we pay off the debt and then go to the bank to see what money we can get for a second mortgage or heloc or use the money towards the addition. We do not have a problem with paying our debt each month and do pay more than the minimum were we can.

Thanks

[bjl584]

What is your other debt and what is the interest rate? If it is high, it may make sense for you to pay it off and use a HELOC for your addition. A few things to think about, The HELOC is most often tax deductable, however the interest rate is variable. With rates being as low as they are, they have no where to go but up. Also, this wouldn't make sense if you are planning on moving anytime in the next few years, because a HELOC will cut into your equity that you have in the house.

[littleroc02us]

My advice is to not go further into debt, if you think these house problems are considered an emergency than I would treat it as such and use part of the 35k to fix those problems and apply the rest at the debt. That didn't require a Heloc or second mortgage to fix your problem. Then get back to punching the debt in the face....

[solvision]

You need to calculate the cost of your current debt. If the total debt repayment figure now (excluding your mortgage) comes out to more than what it would cost to borrow from the bank to do the renovations, then you should wipe out that debt and borrow. Now on that note, if that is the case, and you can borrow $33k from the bank for renovations, then do so and pay off your old debt with the bank money. Then use the $35k to try and get the renovations done cheaper, paying in cash can help to push your price down, and try to put some into investment.