Although few Canadians are surprised to hear residential mortgage debt grew in the fourth quarter of 2001 and continued to increase in this year's first quarter, most Canadians reel when they hear we owe $460 billion against our homes.

Since 70.9 per cent of this debt is held by chartered banks, Canadians continue to allow banks to profit from home ownership. Only 13.9 per cent of residential mortgages are held by member-owned credit unions, the second place contender.

"The strength in housing markets contributed to the 2.2 per cent increase in mortgage credit outstanding in the fourth quarter of 2001 over the third quarter," said Réal Gratton, senior economist at Canada Mortgage and Housing Corporation's Market Analysis Centre. "This is the highest growth rate since the fourth quarter of 1992. Year over year, this raised residential mortgage debt by 5.8 per cent."

Low interest rates and rising disposable income have fueled housing markets and, therefore, mortgage markets across Canada. While mortgage rates stay down, home buyers qualify for larger mortgages and can afford more expensive homes on the same salaries.

CMHC analysts predict that interest rates will rise over 2002:

• The 1-year rate will be in the range from 5.50 per cent to 6.00 per cent at the end of the year.
• The 5-year rate will hover between 7.75 per cent and 8.25 per cent.

However, analysts stress that interest rates will not rapidly shoot up to out-of-reach heights.

"It is important to note that, despite the rise in mortgage rates until the end of this year, they should still be expected to be lower than they were in the fourth quarter of 2000" writes Gratton in the current issue of CMHC's Market Trends

So does that mean if your mortgage lender "kindly" offers you a deal today on your fall-renewal mortgage that you should jump for it? Not necessarily. The economy is shifting faster than some can keep up with. There are serious economic rumblings that suggest significant interest rate increases may be on hold for a while as the economy catches up to forecasts of its recovery.

If you have a mortgage that is currently affordable as long as rates stay the same or drop, take some precautionary steps to reduce your vulnerability to a rate hike at renewal time:

• Start economizing and saving so that you'll have a lump sum to pay down mortgage principal and help reduce your payments.
• Be cautious about taking on more debt until you are sure you'll not end up house rich and cash poor should rates go against you. Delaying a car purchase or an expensive holiday may put you in better financial shape in the long run.
• Stretch yourself now and pay off as much outstanding debt as possible. Getting rid of credit card debt at double and triple mortgage rates is a great place to start.
• Have a financial emergency plan ready just in case. Could you take in boarders or rent out an in-law suite? Would moving your business home cut overhead and give you a new list of home deductions to reduce taxes?
• At renewal time, don't wait to see what your lender will offer. Get out there at least 120 days before hand and shop the market for a better deal. ( See PJ's article Canadians Can Get Better Mortgage Deals for more on renewal.)

As long as housing prices continue to rise and interest rates do not, mortgage debt is not necessarily a financial evil. No one knows where interest rates will be a year or even 6 months from now, but you do know how to reduce your vulnerability to financial uncertainty.