It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on.

In any case, we have advised my father-in-law not to cave into her requests as it would also mean more paperwork for the broker and potentially drawing things out even longer. 

Do this before #22) Draw up a list of your competitive advantages/disadvantages (SWOT analysis for the MBA types) based on her feedback as well as your thinking.

No liability if one draws a straw out of a hat.

Are renovation funds on a draw schedule or up front?

Unused contingency funds, unless they were received directly from the borrower, must be used to reduce the outstanding balance of the renovation mortgage after all of the renovation work has been completed and the certification of completion has been obtained.The loan is not re-amortized.Draw Schedule: The HomeStyle program has a maximum 4 draw process.The initial draw can be up to 25% of the total project and can be for materials for the project.The final draw will be at least 10% of the total project as retainage and funds will be released upon Gateway Mortgage Group’s receipt and approval of final inspection, Certificate of Completion from Appraiser, signed All Bills Paid Affidavits and Lien Waivers.Additional Draw Information: Signed Draw Request by borrower and contractorSigned All Bills Paid Affidavitreview and approve the draw request and will release funds for disbursementA check will be issued in the name of the borrower and contractor and delivered to borrower via USPSAn inspection of work to date will be performed at 50% completeFinal Draw Information: Signed Draw RequestFinal inspection/Completion Certificate will be required for release of final fundsA Title Update showing property free from lien or encumbranceGeneral Contractor’s Lien Waiver AffidavitAffidavit of Completion, will review and approve the draw request and will release a check in the name of the borrower and contractor.Change Orders and Cost Overruns: Changes to the initial plan are not permitted unless prior approval by lender.

Offer $500 plus whatever the costs are to draw it up and be clear it is only for getting in and out of the garage? 

The HML gave me wrong information and the draw process is quite different than how it was explained to me.

I think my options are: 1) HELOC - draw down about 40k with the plan of paying this off quickly and aggressively, as the interest rate is adjustable2) Home equity loan - loan at a fixed rate and term.

I do wonder where you'd draw the line, though-- after all, there has to be a point where a new service transitions from "This is likely a waste of my time" to "This might actually be worth something."