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No problem - you can use the interest tracing rules to deduct the interest based on your use of the loan proceeds. Since you plan to use the proceeds of the loan to purchase a rental property, you'd deduct the interest against the rental income - just as you would if you borrowed the money against the rental property directly.

My biggest concern would be some financial problem at the rental property. You're putting your home at risk if, for some reason, the rents are not sufficient to pay the mortgage on your home. That could be anything from rents less than you expect to a bad tenant that takes a long time to evict to a fire that burns the rental to the ground.

Yes, those are low probability events, some of which can be insured against. But they are still real risks. Some people will be comfortable with those risks and some won't. As long as you're aware of them and are comfortable with them, that's fine.

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