HSBC serviced our loan & always carried deferred interest balance. Was transferred to SPS and is now all principal. Why does HSBC 1098 not include deferred interest paid?

[jim10]

HSBC always carried deferred interest and principal balance on statements and payoff. Was transferred to (purchased by) SPS and is all now principal. So deferred interest was effectively paid correct.

[MichaelL1]

No, it was effectively paid, and therefore not deductible.  

Please read below for more detail.

If the deferred interest is included on your 1098 or your refinance/restructure documents and was paid during 2016, you may deduct it. If the deferred interest was rolled in to the backside of your loan and not paid, you cannot deduct it.

According to the Supreme Administrative Court, capitalized interest on a loan does not become tax deductible at the moment of capitalization, but at the moment of its actual payment. The mere fact of adding interest to loan capital cannot be regarded as payment because, as you mentioned, while it was capitalized, you made no payment to the loan yourself.

"Deferred Interest Mortgage' A mortgage loan that allows the borrower to make minimum payments that are less than the entire amount of interest owed. The remaining interest is added to the amount of loan to be paid off. This is considered to be a negative amortization."