My first mortgage has a $500K balance, and I also have a second mortgage of $250K, which has a 0% interest for two more years (this was part of my employer's relocation assistance). I am thinking of doing a Cash-Out refinance on my first mortgage and pulling out $250K cash (i.e., total refinance of $750K).
I know if I use the $250K cash proceeds to pay off the 2nd mortgage immediately upon refinance, then I can deduct the full interest on the refinanced $750K mortgage. However, I don't want to pay off the 2nd mortgage immediately because I still have 0% interest rate for two more years. If I keep $250K cash from Cash-out Refinance in a CD for two years, and then pay off the 2nd mortgage when it becomes due, can I still deduct the interest on the $250K portion of the refinanced mortgage? Maybe during the two years $250K is in a CD I can deduct mortgage interest on $250K as investment expense, and then after I pay off 2nd mortgage, I can fully deduct mortgage interest?
