I think that the message that you are getting from your in-laws that they got from HR Block has gotten somewhat convoluted.
Yes, they are allowed to deduct their mortgage interest. However, If your father-in-law is 65 or over, their standard deduction as a married couple is 11750 dollars. If their itemized deductions are less than this amount, then they do not get a benefit from deduction their mortgage interest. Itemized deductions include medical expenses in excess of 7.5% of gross income, mortgage interest, property tax, charitable contributions, real estate tax and state and local income or sales tax. If these itemized deductions are lower than the standard (which they usually are for seniors, even those who pay some mortg. interest), then the best tax choice is to use the standard deduction.
Does this make sense to you?