Deduction of interest is limited to acquisition debt plus 100K for primary residence up to $1 million. It is also limited to acquisition debt on investment property.
If your rate is higher, it become fairly expensive.
If I were you I’d pencil it out assuming a fixed-rate second. If you take a fixed rate loan, What it’s costing you is the 2% or so between what you earn in short-term investments and the loan rate (assuming you can deduct the loan, if not you have to consider after tax on the interest, which makes it more expensive).
Consider this an option at the price of 2k per 100K borrowed per year, to guard against increasing rates or lower property values. If you hold the cash for 2 years and things are exactly like they are today, or rates drop you will have paid about 28K for this option. It might be worth it as a hedge. Nothing is free. But, If rates are higher in a couple years you (and cash) will be king. If rates stay the same and prices drop, you have more cash at your disposal than you would have if you didn’t take the funds today. It seems like a reasonably conservative and inexpensive hedge to me, as long as you exercise discipline and don’t dip into the funds prematurely or for other speculation.
Again, consider the points n_s_r makes regarding deductibility, any increase in rate with respect to you current debt, etc.
