Vendor take-back mortgage
The BrokerFold Team — Product + Engineering
Last reviewed
A vendor take-back mortgage — VTB — is a deal in which the seller becomes the buyer’s lender for part of the purchase price. Instead of receiving the full amount on closing, the vendor “takes back” a mortgage registered on the title of the property they just sold, and the buyer pays it down on agreed terms. It’s ordinary contract machinery with an unusual cast: the person financing the house is the person who used to own it.
The shape of the deal
A VTB is negotiated inside the offer and papered by lawyers as a real mortgage: principal, interest rate, payment schedule, term and priority all get drafted, and the charge registers on title like any bank’s. Terms tend to be short — one to three years, often interest-only with the balance due at maturity — because the point is a bridge, not a career. Priority matters most: a VTB in first position is genuinely secured; one in second position behind an institutional mortgage is only as safe as the equity above the first charge. If the buyer also needs bank financing, the bank’s consent to the second charge is part of the choreography, not an afterthought.
Why sellers say yes
VTBs surface when months of inventory stretch and borrowing gets expensive — the market conditions where buyers who want the property can’t quite finance it conventionally. The seller’s compensation is real: the property sells, often at a firmer price; the balance earns interest that can beat what the cash would; and where the proceeds are truly deferred, Canada’s capital-gains reserve can spread the taxable gain over as many as five tax years — a question for the seller’s accountant, not their agent. Commercial property, land and buildings with financing quirks lean on VTBs most, but residential deals rediscover them every time rates spike.
The risks nobody should skip
The seller has traded a house for a loan, and loans default. Enforcing one means legal process — foreclosure in BC, power of sale in Ontario — against a property the seller no longer controls or maintains. A second-position VTB can be wiped out if the first lender enforces into a falling market. Buyers carry the mirror risk: a short-term VTB with a balloon payment assumes refinancing will be available at maturity, which is a bet on future rates and future rules. Every clause lives or dies on drafting, which is why the VTB belongs in the offer itself — in BC, the Contract of Purchase and Sale — with both sides’ lawyers involved before anyone signs.
Frequently asked questions
Why would a seller ever agree to lend the buyer money?
To sell the property. In a slow or expensive-credit market, a VTB widens the pool of buyers who can close, often supports a stronger price, earns interest on the balance, and — where proceeds are genuinely deferred — can let the seller spread the taxable capital gain across several tax years.
What happens if the buyer stops paying a VTB?
The seller enforces like any lender: foreclosure proceedings in BC, power of sale in Ontario. If the VTB sits in second position behind a bank mortgage, the bank gets paid out first from any sale — which is why the seller's real security is the equity left after the first charge.
Keep reading
- Months of inventory Months of inventory (MOI) estimates how long the market's current listings would take to sell at today's pace — the standard gauge of housing supply.
- Agreement of purchase and sale The APS is the contract at the centre of every Ontario home sale — offer, acceptance, deposit, conditions and closing terms in one document.
- Contract of purchase and sale BC's standard purchase contract — subject clauses, deposit timing, the three dates, and the rescission period Ontario deals don't have.