Can I replace my old house while keeping my existing home mortgage.?

My wife and I own a home in Pasadena, CA. I bought it for $ 210,000 in 2000, and through a refinancing, I’m paying 5.0% fixed.

This old house is too small, and is just about falling apart. We’d like to get a bigger house with a basement, but buying into a bigger house would mean getting a new loan. Plus, we like the property location. When we had the house appraised 12 months ago, it was estimated to be worth $ 550,000 — most of that value is in the land, as real-estate is super-expensive around here.

I’d like to hang on to the existing 5.0% fixed mortgage, stay on the property, and just have a new house put in to replace the little “shack”. Is this possible? What are the possible complications? How do I go about this process?

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