This is VERY helpful. The key is any new loan must substantially improve the home purchased by the original loan. If I understand correctly, a refinance with a cash out to buy land for a second home and later a second mortgage to build that second home do NOT meet the requirement because these funds are not improving the home that is the collateral for the original loan. Hence the interest on these is NOT deductible. I would think the same applies to a refinance where one consolidates a first and second mortgage. Only the first (original) loan interest would be deductible. Could you please verify that I am correct in my understanding. Thank you very much.
