Cash out refinance or cash mutual funds for next home

[Kate C.]

Hello,  I live in a neighborhood with excellent public schools and my daughter is graduating.  We would like to purchase a new home (estimated value of 700,000 - 800,000) and rent out our current home (valued 1,000,000).  We only have 5 years left on a 15 year loan with a rate of 3.75 balance of 320,000 on our home.  Is it wiser to a) wait and save up cash for the downpayment of a new home, b) cash out refinance and take a new loan of 424,000 for 15 years to use 104,000 for a downpayment or c) cash mutual funds and pay the tax next year.  (Ouch!)

Any advice is welcome. 

Thank you for your time and guidance.