penalties start at 40% weight, was thinkin maybe get a +1 init bonus if under 20, then another at 10, and another at 0?
No, this isn't about weight. It's about the extra advantages that come in combat with having a free hand. You could grab enemies and pull them towards you, push off the ground to stop yourself falling over, or to help you get up faster. Use two hands on your weapon for powerful swings, or toss it from one hand to the other for easier reach in different directions. It's about flexibility.
To clarify, i'm thinking of one-handed weapons only. Not staffs or spears or anything else big, and not really for mages.
Perhaps it could be represented by a small bonus to initiative, dodge, and a free counterattack. Think of it like a fencing style, light and graceful