If I'm reading your question directly, it's not the state, it's the lender that imposes any early prepayment penalties.
We paid off both our homes years early, and have never ever come close to regretting it - "tax deductions" and whatever contrary advice be damned.
There is absolutely no better feeling, unless you're a 16 year old boy getting boinked by a hot teacher, than getting the 'note paid' letter on your home.
Each to his own.
I could pay mine off tomorrow but am pleased as could be that they will loan me money below 5% fixed for 30 yrs and let me deduct the interest.
I think there is a law that despite the loan's contract as to fees for early pay off, I think there is a law that after 7 years they can not add a fine for paying off early.
I heard something like that. I'm not sure, so I put it out there. I'm like 90% sure on that one though.
You want to see people lose homes though, if taxes go on homes based on market values a lot of people would have to give up their homes. It would be like having an additional $500 a month each month to the state for no good reason.
$500 when you get older or retire or if you big pay days were in times when people got paid less is a lot of money a month.
In CA when they remove prop 13, all hell will break loose IMO.