@SweetieJean - sure, why not, but the loan would have amortized in the meantime.
Because the part of the mortgage that amoritizes first is the part that is not aquisition debt or used to substantially improve the home, I wonder if that scheme was Congress's way of limiting the time to improve the home - as the loan amortizes the benefit goes away in any event,.
example:
1) My mortgage is $300,000 today
2) I do a cash out refi which takes the mortgage balance to $350,000, but do not substantially improve my home...therefore the interest on the $50,000 is not deductible.
3) 10 years from now, the mortgage balance has amoritzed to $320,000 - the interest on the $300,000 is still deductible (because it's the aquisition debt), but interest on the $20,000 is not since it was not aquizition debt and not used to substaintially improve my home/
4) I finally improve my home and spend $30,000 to do that.
5) the entire $320,000 of the mortgage balance is now either aquisition debt or used to substaintially improve my home. I can deduct all the interest.
There is a whole section in Pub 936 that discusses what happens if you improve your home and THEN do a cash out refi - there are time limits on that.
But there is no additional commentary that I could find on what happens if you cash out first and don't improve the home - other than, it is not deductible, until you improve the home and there is no discussion of a time limit. (but again, the amortization reduces the benefit in any event)
