“Mortgage interest is deductible, so reach for the stars.” But trouble with maxing out your mortgage is two fold:

(1) That mortgage interest deduction is not painless. You may save 25% to 30% on income taxes but the other 70% to 75% comes out of your pocket. It’s like spending an extra dollar each month to get back thirty cents when income taxes come due the following April.

(2) Your mortgage is a personal obligation; you can’t walk away without consequences. You can sell stocks at a loss; if you sell your home at less than its mortgage balance, you remain liable for the difference. In today’s market, is that a risk worth taking?

Moral: in 2010 buy and finance only what you can carry. As values return to their normal growth pattern (long term home values rarely decline for very long), your growing equity will enable you to move up or remodel and expand to meet your growing needs. But now is not the time to reach beyond your grasp.