TurboTax seems to be not applying the interest paid as a deduction. I thought that would only apply to the year we did the cash out, not future years.
It would apply to all outstanding loan balances where the funds were not used to buy, build or improve the home each year. It is not considered home mortgage interest.
Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home). It must also be secured by that home. If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that isn't more than the cost of the home plus substantial improvements qualifies as home acquisition debt.
Any additional debt not used to buy, build, or substantially improve a qualified home isn't home acquisition debt. TurboTax will calculate the amount of allowed mortgage interest deduction based on your entry or you can choose to make the entries yourself (see the worksheet using the publication link above).