Let me give an example.
You purchase a home in 2010 for $100,000, putting $20,000 down and financing $80,000 of that. 100% of the interest you pay on that original loan is 100% deductible on the SCH A for the entire life of that loan.
In 2020 you owe $60,000 on that loan and you refinance the loan for $100,000, thus taking a $40,000 cash out. At the time of refinance your outstanding balance on the loan originally used to purchase the house was $60,000. But you refinanced for $100,000 taking $40,000, or 40% of the cash for "other purposes". So only 60% of the refiance loan was used to pay off the balance on the original mortgage. That means that only 60% of the interest on the new loan can be claimed on SCH A every year, for the life of the new loan.
Now if you used all or a portion of the $40,000 you cashed out to "maintain or improve" the home, that money can be included in and added to the percentage that you can claim on SCH A. Since it appears you used the cash out to pay off "other debt", the percentage of the interest reported to you on the 1098 that applies to the cash out percentage can not be claimed on SCH A.
