@Frank-Farrell - I appreciate this is an old post and I tried to read though it.
the rules for investment property and your primary residence are different. The interest for the investment property are covered by the rules for Schedule E while the personal residence interest are covered by the rules for Schedule A
You did have a question about someone who owned their home free and clear. Understand the IRS has a definition of 'acquisition debt' - that is the money you use to buy your home in the first place, plus money used to improve the home. THAT related interest is what is deductible on Schedule A.
If you own your home free and clear, and decide to borrower against that home, the interest is ONLY deductible if the money is used to improve the home. if it is used for cars, vacations, the stock market, etc, it is not deductible. You can use it as collateral, but the use of the cash out is the critical determining factor on whether it is deductible or not
You always have to keep tract of the cash out that was not used to improve the home; but as the loan amortizes, it is the principal related to the cashout that amortizes first.
