The situation when the interest in added to principal - as "adjustments" is referred as a reversed mortgage.
Please see for reference IRS publication 936 - www.irs.gov/pub/irs-pdf/p936.pdf
A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. With a reverse mortgage, you retain title to your home. Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt.
So your mortgage may be viewed partly as conventional mortgage and partly as reserved mortgage. Thus - the interest which was accrued but was not actually paid is not deductible until you actually pay it.
Sorry if you expected a different answer.
Let me know if you need any help.