I agree with Al. Talk with a mortgage professional and have him/her take an application to analyze your credit, debt ratio, assets, etc in order to make the final determinitation. You get a tax write off on the interest so that's one reason not to pay the loan down using your 25K, but if you can avoid PMI all together it's a good idea. If you "have" to payoff debt to lower your ratio you may not have a choice to use the 25K to payoff debt. A good loan officer will be able to go over the pros and cons and type up different proposals for you. This process only takes about 10-15 minutes.