Dear Dr. Don,
My wife and I purchased our home about two years ago with a 30-year Federal Housing Administration, or FHA, fixed-rate loan at 5.875 percent. We later used a bank loan at 11.9 percent to install new windows in the home. We’ve also had the yard completely fenced in for our dogs.

If we refinance, will we be able to have the home reappraised to decrease our loan-to-value ratio (the outstanding loan balance divided by the appraisal value) so we can pay off the bank loan?

Scott Subsume

Dear Scott,
Without an appraisal, it’s just a guessing game as to whether your home will appraise for enough for a cash-out refinancing to pay off the bank loan.

Most homeowners have a pretty good sense of what their house is worth in the marketplace, even in these times of turbulent housing prices in some parts of the country.

You’ve got a great rate on the FHA loan. Taking on the closing costs with a new first mortgage can be expensive. You want to make sure it makes financial sense to abandon your existing mortgage and do the cash-out refinancing.

An alternative could be a home equity loan or home equity line of credit, known as a HELOC, to replace the bank loan. To that end, take a look at The Mortgage Professor’s
financial calculator that lets you determine if a cash-out refinancing or a second mortgage is the better option. You can also try Bankrate’s
Mortgage debt consolidation calculator that can be used to determine whether refinancing or using a mortgage is the best way for you to consolidate debt.

Although it’s not likely, you should also make sure there’s not a prepayment penalty period on the bank loan.

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