As the economic recovery continues, the Bank of Canada is no longer promising to keep interest rates down, prompting financial institutions to begin hiking mortgage interest rates. This has led to speculation that many homeowners will not be able to handle their mortgage payments. But a flurry of surveys and research reports indicates that most homeowners are confident they can handle future rate increases.

A Canada Mortgage and Housing Corp. (CMHC) survey says that 81 per cent of homebuyers are comfortable with their current level of mortgage debt, and that 80 per cent are comfortable that their financial situation will be stable over the next year. Ninety-one per cent say their income level should remain stable or grow during the next several years.

Similar results come from an Investors Group survey, which says more than one-third of homeowners who have a mortgage are not worried about being able to make their payments in the event of an interest rate increase. Another 41 per cent said it would take an increase of three per cent before they would become worried.

Investors Group says the median outstanding mortgage balance of those surveyed is about $130,000. Adding a three per cent increase to that mortgage, with a starting interest rate of 4.5 per cent and an amortization of 25 years, would add about $230 to the homeowner's monthly payments.

In another example, a report by investment firm Edward Jones says that about 30 per cent of mortgages originated from 2007 to 2009 had terms of one to three years, at rock-bottom interest rates. "As the rate terms for these mortgages expire in the coming years, it's likely borrowers could face new, higher rates, and thus higher monthly mortgage payments," says the report. "A three per cent increase in mortgage rates…implies mortgage payments for these borrowers could increase by an average of $444 per month for a mortgage of $254,514."

So what are Canadians doing to offset the higher rates?

CMHC's survey says that since taking out their mortgage, 27 per cent of recent homebuyers have either made a lump sum payment or increased their regular payments. Almost 80 per cent of those surveyed have amortizations of 25 years or lower. These activities drastically reduce the long-term cost of a mortgage and get it paid off sooner, but they don't help with higher monthly payments.

Another survey, by TNS Canadian Facts, found that 13 per cent of mortgage holders surveyed have negotiated for better payment terms.

Whether you are taking out a new mortgage or renewing an existing one, it pays to shop around. The mortgage business is highly competitive and it's likely you can negotiate a lower rate. If you are switching from a variable-rate mortgage to a fixed rate, look at going with a four-year term instead of five years – you may get a better rate.

The TNS survey says that 22 per cent of mortgage holders are planning to renew early or renegotiate to take advantage of the current rates. Analysts say the housing boom that saw record sales early this spring in Canada was partly due to people jumping into the market to take advantage of the low rates.

The Investors Group survey found that most mortgage-holders (56 per cent) don't think it's important to have their mortgage paid off in full when deciding to retire. Sixty-two per cent of those surveyed are carrying their mortgage debt into retirement or have already done so. For retired mortgage-holders, the median mortgage balance is $82,000. But among those not yet retired, 23 per cent said they would probably have a mortgage balance of less than $25,000 when they retire.

"The road to being mortgage-free is paved with good intentions, but twists and turns along the way can make the trip longer than you'd planned," says Peter Veselinovich, a vice-president at Investor's Group. "Having a strong plan in place is essential to achieving your goal."

BMO Bank of Montreal research shows that men are more likely than women to say that talk of rising interest rates has influenced their decision to enter the housing market, and women are more likely to say that they are overwhelmed by the choices and decisions involved when buying a home.

"BMO advises Canadians to stress-test their financial budget now based on a higher interest rate to ensure they are adequately prepared now that rates are going up," says Jane Yuen, senior manager or mortgages at BMO Bank of Montreal. "While there are many ways of getting a mortgage, the key is to make sure you're getting the right advice. It starts by talking to your banker and understanding how your mortgage fits into your overall financial goals."

This is the time of year when Canadians start receiving their income tax returns. BMO says the average tax refund last year was $1,400. In yet another survey, it found that only four per cent of Canadians plan to use that refund to help pay down their mortgage. Fifteen per cent plan to use it for home renovations or household expenses.

In 2009, delinquent residential mortgages represented less than 0.5 per cent of all mortgages in Canada.

Published: May 11, 2010

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Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He has been writing about Canadian real estate, home building and renovation issues for more than 30 years. You can contact Jim at .