As the cost of daily essentials like food and gas seem to be on the rise, debt counsellors say many Canadians could be pushed over the edge financially if mortgage rates also increase.

Heather Cudmore, a debt counselling manager with Mosaic Family Counselling, says "Unfortunately what I'm probably seeing are clients are maybe one paycheque, maybe two paycheques away from really being in financial difficulty."

She adds that many people aren't prepared for higher interest rates and "actually the average Canadian is supporting their income using credit cards."

According to The Vanier Institute of the Family, the number of households two or three months behind on their mortgage is up 50 per cent since the recession began.

In addition, a poll by the Bank of Montreal found 20 per cent of Canadians say they don't know if they can deal with higher mortgage payments.

Peter Schneider, a long-time Kitchener-Waterloo real estate agent, says with many five year mortgages coming up for renewal in 2014, that's when the local market could feel the impact.

He says the market would likely suffer, "but hopefully at that time property values have increased enough that if people found mortgage payments too high, that they could have some equity in their house that they could walk away and sell and make a little bit of profit."

Real estate sales in Kitchener-Waterloo dropped nearly seven per cent in February, with prices dropping about one per cent.

But Schneider says mortgage rates would have to double to have a major impact on real estate.

"If it went up to eight per cent," he says, "that would be a substantial change, but I can't see that happening. Mind you if you had asked me ten years ago could I see interest rates at one per cent I would say no, I can't see that happening either."

Meanwhile, Cudmore says homeowners can prepare for an increase in mortgage rates by changing small spending habits, like daily stops at the coffee shop.

"If you drink two coffees a day it's about $3.40, over a month it's under a hundred bucks, but over a whole year it's over $1,000 just on coffee," she says.

To get a handle on debt, Cudmore suggests keeping a daily log of what you're spending your money on.

DJ Schonefeld is a Cambridge homeowner who says he can deal with higher mortgage payments if he has to.

"I would definitely have to cut from different places and try to balance out and maybe eliminate different things," he says. "It's all really to me luxury versus necessity too, so you have to cut from different spots to make it work."

Economists expect borrowing rates will start to increase in July 2011, and if you anticipate running into financial hardships, it could help to get advice now.

For independent advice on debt and financing there are a number of non-profit organizations in Waterloo Region.

For more information please visit:

Mosaic Counselling Kitchener: http://www.mosaiconline.ca/

Financial Consumer Agency of Canada: http://www.fcac.gc.ca/

Credit Counselling Canada: http://www.creditcounsellingcanada.ca/

Credit Canada: http://www.creditcanada.com/