re: Better to spend all of savings and be debt free or full of debt with lots of...

If your income is sufficient to qualify for the two home loans, why are you so lean on liquidity?

I suspect (could be wrong) that spending may be the bigger issue in which case I can't see two mortgages being a good idea.

Sell the house, take your hit and get disciplined once in the new house with one mortgage on building that cushion.