Canadians put themselves in a vulnerable financial position because they took advantage of low interest rates during the recession -- and bit off more than they could chew.

That's the conclusion of a new survey of Canada's economy from the Paris-based Organization for Economic Co-operation and Development.

Debt skyrocketed in Canada over the past year as Canadians rushed to take advantage of the low mortgage rates brought in to help fuel the economic recovery, the OECD says.

Now, as rates begin to creep back up, Canadians are feeling the pinch. The report said about 375,000 homeowners are currently being forced to cut spending in other areas in order to pay their mortgages.

Canada Mortgage and Housing's annual report also paints a grim picture: Last year, more than a billion dollars' worth of properties were seized or about to be seized. That's three times higher than the year before -- and four times higher than forecast.

"It surprised me that we saw the underestimation we saw in the rise in foreclosures," Adrienne Warren, senior economist with Scotiabank, told CTV News.

If mortgage rates were to climb to 5.25 per cent this year, the OECD said, citing the Canadian Association of Mortgage Professionals, a whopping 475,000 additional homeowners would have to cut back on their spending in order to keep up with their mortgage debt. 

"The rebound in the housing market has been key to Canada's recovery from the recession," the OECD report said. "But it has left some facing a toxic combination of hefty debts and rising interest rates as the Bank of Canada pulls back from the emergency low rates used to juice the economy back to life."

The report warns that Canadians are vulnerable to "any future adverse shocks" in interest rates and recommended the federal government take steps to deter "marginal" buyers from the entering the market.

Finance Minister Jim Flaherty pointed out Monday the federal government has twice tightened mortgage lending rules, once in 2008 and again this year, which has helped keep some high-risk homebuyers out of the housing market.

But he said Canadians must also take steps to ensure they can afford the homes they are purchasing, especially when rates go up.

"Canadians need to remember that mortgage rates are at one per cent with the Bank of Canada, they're not likely to go lower over time, and people have to be prepared to handle their mortgages when interest rates go up over time," Flaherty told CTV's Power Play.

"So it's something that all Canadians who have residential mortgages need to think abut when they make decisions about the amount of risk they are prepared to take in their lives."

Essentially, the report said, the overpriced housing market needs to cool off before more buyers are allowed to enter.

Though the report takes a somewhat dire-sounding tone, OECD Senior Economist Peter Jarrett said it is meant to be cautionary.

"Right now it should be emphasized that delinquency rates remain very, very modest and this is all in anticipation of what might be coming down the pipe in a year or two," Jarrett told CTV's Canada AM on Monday.

Cost-cutting needed in health care spending

The OECD report also looked at Canada's health care spending, warning that a desperate clamp-down is needed.

The federal government along with its provincial counterparts needs to rein in spending or suffer the consequences of expanding deficits due to Canada's aging population, the OECD said.

Current long wait times and a shortage of doctors are indicators of the trouble to come unless action is taken, the report said.

Those problems will only increase along with the age of the population, and sacrifices will have to be made in other areas in order to keep up, the report warns.

Social services could be cut, or taxes increased, in order to cover the cost, the OECD warns.

"The growth of public health spending must be reduced from an annual rate of about 8 per cent seen over the last decade toward the trend rate of growth of nominal income in coming years (estimated to be less than 4 per cent per year), the only alternative being to squeeze other public spending or to raise taxes or user charges," the OECD said.

With a report by CTV's Richard Madan