As traditional mortgage lending tightens across Ontario, vendor take-back (VTB) mortgages are experiencing a dramatic resurgence. Recent data shows VTB transaction volume in Canada has soared from $767 million in 2021 to $3.5 billion by the end of 2023—a nearly fivefold increase in just two years. This shift is reshaping how deals are made, especially when buyers can’t meet stricter bank requirements or sellers want to unlock more value from their property.
What Is a Vendor Take-Back Mortgage?
A VTB mortgage is a seller-financed arrangement where the seller acts as the lender, providing a portion of the purchase price directly to the buyer. The buyer then makes regular payments—often at a negotiated interest rate—back to the seller, with the property itself serving as security. This approach is particularly attractive in today’s market, where traditional lenders are more cautious and private lending has reached record highs in Ontario.
Why Are VTBs on the Rise?
Tighter Bank Lending: Banks and federally regulated lenders have scaled back new mortgage originations, making it harder for buyers to qualify for conventional loans.
Flexible Solutions for Sellers: Mortgage-free sellers, such as retirees or condo owners, can use VTBs to generate steady income at competitive rates while deferring capital gains.
Expanding the Buyer Pool: VTBs help buyers bridge financing gaps, making it possible to close deals that might otherwise stall due to lending restrictions.
Benefits for Sellers and Buyers
For Sellers:
Steady interest income, often at rates higher than traditional investments
Ability to defer capital gains and spread out tax liabilities
Potential to sell properties faster in a slow or competitive market
For Buyers:
Access to financing when banks say no
Flexible terms tailored to their needs
Opportunity to build equity and improve credit for future refinancing
What Realtors and Clients Should Know
While VTBs won’t suit every transaction, they’re an increasingly important tool in today’s real estate environment. Realtors don’t need to draft VTB agreements themselves but should recognize when a deal could benefit from seller financing and connect clients with legal professionals who can guide the process. Proper legal documentation and lender disclosure are essential, especially if the VTB is in second position behind a primary mortgage.
Final Thoughts
The surge in vendor take-back mortgages signals a fundamental shift in Ontario’s real estate financing landscape. For sellers looking to maximize value and buyers seeking alternative paths to homeownership, VTBs offer a flexible, mutually beneficial solution. If you’re considering a vendor take-back mortgage or want to learn how it could work for your next transaction, the Carson Law team is here to help you navigate the process with confidence.
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