I am aware of that statement in IRS pub 936. However, it applies to paying down an existing loan. If I do a cash-in refi, Pub 936 is more vague. It only says that for a refi, you cannot ascribe more to the home acquisition loan amount than what it was from the prior loan. There is nothing that says you cannot ascribe less to the home acquisition loan amount on a refi. It seems that when you do a cash-in refi, you are taking a new mixed-use loan and can assign the cash in to either category of debt. It seems that the paydown rule you state only prescribes the cash in allocation if the IRS considers a refi a continuation of the same loan subject to the same paydown rules, but it doesnt state that explicitly anywhere in pub 936.
