As of now, I would use Approach 2.
Approach 2 is a cleaner approach, as it separates out the individual loans. It would also be necessary if you purchased points on any of the old loans and they are being amortized over the life of the loan. I would also recommend this approach if you made any additional principal payments at the time of refinance, as that can affect your mortgage limit if your loan is over $750,000 (or $1 million if you purchased the home before December 15, 2017).
Aside from the points or pay down stipulation, Approach 1 is also fine. The IRS only gets the final deductible interest amount, not any of the background entries, so it doesn't matter if you combine them all onto one form. If your mortgage principal is under $750,000, then it really shouldn't matter which one you use. If you do use Approach 1, I would actually use the Box 2 Outstanding mortgage principal from the most recent loan, not the original loan. This would make the deductible interest match the amount you would get using the other approach.
Previously approach 2 was not calculating correctly because it was adding all the outstanding mortgage principals together, which was throwing off the deductible interest in many cases. Approach 1 was the workaround, but it also saves you some data entry.
