Refinance penalty (more tax due when selecting the loan is refinanced)

[ivory]

I refinanced my house in 2020 (principal < $750k, purchased before 12/15/2017, no cash out when refinanced). When I entered the 1098 received for 2021, I found I owned $4k more federal tax when I select Yes for "Is this loan a home equity line of credit or a refinance of a previous loan" than selecting No for the question.

I am married filling separately by the way.

More specifically, I answered No for "Is this the original loan you used to buy your property",  Yes for "Is this loan a home equity line of credit or a refinance of a previous loan" and No for "Did you take cash out when you got this loan"。

That sounds like I got some penalty when refinancing my house. Did I get it wrong?

[Vanessa A]

No, there is not a penalty for refinancing your house.  You can go back and delete that W2 and re-enter. 

 Are you entering more than one 1098?  If so, does the total balance exceed $750,000?  If so, this would cause your total balance to be too high so part of your interest would not be deductible.