What Would You Do?

I have a question for which I’m hoping to get others’ opinions. Please be kind — I have been going crazy with this and with everything else on my mind, and I have no one.

For context (very important): I am a single (divorced) female in my 50s. Live in the Midwest. I have a terminal medical diagnosis for which I am not allowed/able to work. No one is quite sure how long I will survive this condition — could be 1 day, could be 5 years. But short of a miracle cure, it will definitely be terminal. I receive Social Security Disability as my only source of income (about 35k/year).

I purchased a house 3 years ago (when I was rich — ha ha) in a low cost of living small city in the Midwest. I paid $175k for it. Conventional 30-year loan at 4.3%. Payment is $1220/month. It’s definitely tight budget-wise. I still owe about $135k on the loan. Current Zestimate on house value is $207k (seems about right for the area). I know they often aren’t accurate though.

Now for my dilemma. I qualify for a local assistance renovation/refi loan or just a renovation loan. Can do either one. The draw is that $25k of the loan is completely forgivable after 5 years (1/5 each year). With that I would need to take out a bigger rehab loan and pay on that at current interest rates. The house needs energy efficiency and other updates… it was built in the 1930s

See below for scenarios using my numbers (from the mortgage lender). I am thinking about doing the 20-year option.

Anything I haven’t thought of or am misunderstanding? Financially it will be tight, but I can probably come up with another $350/month or so, somehow. Thank you in advance.

Refinance Scenario: $134,000(mortgage balance) +$60,000(rehab budget)

+$6,000(10% contingency for contractor overages)

$200,000 -$15,000(rehab subsidy)

-$10,000(energy advantage ONLY FOR ENERGYSTAR CERTIFIED UPGRADES SUCH AS WINDOWS, SOLAR, DOORS, INSULATION, UPDATED HVAC, ETC)

$175,000 over 30 years at 6.5% is $1,106 p/ month principal and interest and then another $435($310 prop taxes, $125 HOI) totaling $1,541 p/ month.

2nd mortgage scenario: +$60,000(rehab budget)

+$6,000(10% contingency for contractor overages)

$66,000 -$15,000(rehab subsidy 33% of bid total up to $15,000)

-$10,000(energy advantage ONLY FOR ENERGYSTAR CERTIFIED UPGRADES SUCH AS WINDOWS, SOLAR, DOORS, INSULATION, UPDATED HVAC, ETC)

$41,000 over 30 years at 7.875% interest is $297.28 addl p/ month on top of your $1225 first mortgage totaling $1,522.28 p/ month $41,000 over 20 years at 7.375% interest is $327.17 addl p/ month on top of your $1225 first mortgage totaling $1,552.17 p/ month

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source https://www.reddit.com/r/RealEstate/comments/1ao1unh/what_would_you_do/