You really need to check with your tax accountant on the loan.  Technically, on the books you would reduce the amount of the debt and credit an income account called "forgiveness of debt" which is taxable income. 

You might be better off paying back the loan in full and having the relative gift you that amount.  You will likely have to receive payments over several years since there is a limit to a non-taxable gift given for both the giver and the receiver.  That is why I would suggest you confer with your tax accountant before finalizing the transaction.