The key thing is how is the loan secured. I don't understand how the loan is secured by a deed.
The type of deed that was used to covey ownership to you. It means that your grandmother guarantees it is good. (The other common deed type is a "quitclaim" did. In that the seller just gives up any claim to the property but does not guarantee that no one else has a claim to it. Warranty deeds are better for buyers).
Independent of how the property was transferred to your ownership, the requirement for deducting interest is that the LOAN be SECURED by the property in a legally binding way. Typically that is done by the buyer giving the lender a mortgage in writing and that mortgage being recorded at the registry of deeds.
But this can depend upon the laws of your particular state. The attorney who set this up for you (or any real estate attorney) can give you advice. If you have questions I recommend that you seek the advice of a lawyer in your jurisdiction. See for example some state differences here:
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