@fanfare @Carl
Pub 936 page 10:
Refinanced home acquisition debt. Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt not used to buy, build, or substantially improve a qualified home isn't home acquisition debt."
“Figure the balance of that category of debt for each month. This is the amount of the loan proceeds allocated to that category, reduced by your principal payments on the mortgage previously applied to that category. Principal payments on a mixed-use mortgage are applied in full to each category of debt, until its balance is zero, in the following order. a. First, any home equity debt not used to buy, build, or substantially improve the home. b. Next, any grandfathered debt. c. Finally, any home acquisition debt.”
Further, please look at the discussion of mixed used mortgage page 13 (Pub 936) – 2nd column and continuing with Example 1 and Example 2 in the next column. In Example 1, all the principle payments go against the Home Equity debt first and once that is extinquished (Example 2), only then against the Acquisition debt.
There is no proration of the amortization (which is what I think you were suggesting???); there is a prioritization where all the principle payments reduce the home equity debt not used to improve the home first.
