When I was younger, I planned to keep mortgages around 200K and move up houses when I got under 50K to go. That is a level that can be carried without much financial stress even with one income or large increase in interest rates. Unfortunately, a combination of extremely high transaction cost (and hassle) combined with government allowing unlimited tax-free appreciation of principal residence puts people in a situation where statistically, one of the better financial plays you can make is max mortgage and pray. For 99% of the people, that works out well financially over the long-term. It adds stress and cashflow concerns and for a few people the house of cards collapses.
Hell, with rapid escalation in prices, there are some interesting scenarios happening. I know people that bought a house about 15 years ago for 500K. Obviously shingles will need to be done in the next few years and they are likely looking at a ~$40K bill. That is almost 10% of what they paid for the house and occurs all at once. Sure they could put it on HELOC but rapidly rising variable rate will hurt. Mortgage should be down to something like 200K left. Do they refinance and add 25% to their mortgage to cover a maintenance expense? Ouch.
If government enacted the tax-grab they discussed where homeowners pay a yearly 1 or 2% of house value as a wealth tax, we would probably sell and move. Sure the house may still make money long term but cash-flow would be brutal. They were talking about allowing it as an interest bearing loan but that could run away from you quite quickly. Nothing guarantees a future government doesn't increase the rates on those loans once they are well into six figures. You could easily get foreclosed if that rate bump happened before you paid off your mortgage and could afford to divert that money into the outstanding tax liability. If they plan to tax homeowners (not a terrible plan imo if structured properly), a tax on the way out is far more palatable than continuously drawing blood.
