Negotiating a Vendor Take Back Mortgage Clause

If you are a home buyer struggling to come up with the required down payment for your purchase, negotiating a Vendor Take Back Mortgage Clause can be an option for you.

Vendor take-back mortgages are a unique financing strategy that offers many advantages to buyers and sellers. However, they also carry risks and must be carefully evaluated.

What is a Vendor Take Back Mortgage Clause?

A vendor take back mortgage clause is a unique financing option that allows buyers to purchase property even when they have difficulty qualifying for traditional mortgages. This type of mortgage can benefit both buyers and sellers in a variety of ways, and it’s gaining more recognition in the Canadian real estate market as a creative financing solution for both commercial and residential properties.

Vendor take back mortgages are often used in the commercial and multifamily real estate markets, but can also be beneficial for single family home buyers when it comes to helping them access financing or reduce their down payment requirement. This unique financing arrangement also helps sellers generate additional income when their property is sold.

To understand a vendor take back mortgage, you have to first realize that it is a loan from the seller of the property to the buyer. It is a form of financing that is usually taken in addition to a conventional mortgage from a bank or other lender. This loan is typically at a higher interest rate than the buyer would receive with a standard mortgage.

With a VTB, the seller extends a mortgage to the buyer in return for a percentage of the sales price (often up to 50% of the purchase price). The seller’s name is kept on title, and they collect interest from the borrower.

Generally, this type of mortgage is offered to buyers who have been denied mortgage financing from other lenders or who are having trouble qualifying for traditional loans due to credit issues or other factors. This type of financing also has benefits for sellers who can defer capital gains tax on investment property.

In this way, it can be a short-term financing solution until something better comes along for the buyer. It can also be a way for the buyer to build up their credit score by paying back the lender.

A vendor take back mortgage can be beneficial for both buyers and sellers, but there are some risks involved. You should consider carefully the terms of your mortgage agreement and your current financial situation before entering into a vendor take back mortgage.

Benefits of a Vendor Take Back Mortgage Clause

A Vendor Take Back Mortgage Clause (VTB) is a creative financing strategy that may prove beneficial to buyers and sellers in a slow market. As interest rates rise and offer nights disappear, many property purchasers are searching for alternative sources of financing to get them into their homes. They may have poor credit scores, inconsistent incomes or other debts that make them ineligible for traditional home loans.

Traditionally, buyers would go through their primary lenders to secure a mortgage for the purchase of a new home. These conventional lenders typically provide fair interest rates and flexible mortgage terms. However, they also require a large down payment and lengthy qualification processes that are not always ideal for the self-employed or first-time home buyer.

As a result, some property owners who are looking to sell their homes choose to obtain vendor take back mortgages to cover part of the sales price and save money on the transaction. These types of arrangements help the seller to sell their property while collecting a higher amount of interest from their sale proceeds and avoiding taxes on their sales.

Another benefit of this type of financing arrangement is that it allows the home seller to generate income from their property. This additional income can be used to pay off their VTB mortgage and help them stay in their home longer.

The seller can also use the funds to improve or repair their home. This helps to increase their net worth and makes them more appealing to potential buyers.

In addition, some vendors choose to obtain vendor take back mortgages when they have a lot of equity in their homes. This will give them the ability to sell their home for more money and reduce their tax bill by spreading out the capital gains.

This is a win-win situation for both parties in the sale, but it does come with some risks and considerations. These include the fact that a VTB mortgage is a second lien on the property and can be subject to foreclosure in the event of a default.

Risks of a Vendor Take Back Mortgage Clause

A Vendor Take Back Mortgage Clause is a unique type of financing that can help real estate sellers in difficult selling markets. However, it can also carry risks if not properly handled.

Vendor Take Back Mortgages are second-position mortgages that are typically offered by sellers to entice buyers to buy their homes. These types of mortgages often have higher interest rates than conventional mortgages. This makes them more expensive for the buyer and the seller, since they are taking on additional risk by making these loans.

VTBs are also a type of mortgage that can be subject to foreclosure in the event that the borrower defaults on the loan. This is due to the fact that they are second-liens on the property.

Regardless of the risks, a vendor take back mortgage can be beneficial for many real estate investors. This is because it allows them to reduce their down payment and maximize the potential of the property.

They can also use this strategy when they are trying to purchase distressed properties and improve them. They can then approach a lender when they have made the necessary improvements.

Although VTBs have been re-emerging as a mortgage option, they are still a new trend in the housing market. Ross Halloran, Broker and Senior VP Sales at Halloran & Associates, Sotheby’s International Realty Canada, says they are seeing the resurgence of this type of mortgage for the first time in about 20 years.

He notes that the resurgence of vendor take back mortgages is happening as banks tighten their lending guidelines and the real estate market becomes less competitive. They are also observing a shift in how appraisers are looking at property values as the Bank of Canada continues to raise interest rates and make mortgages more difficult to secure.

Despite the resurgence of these mortgage options, they should be used carefully. Ideally, you should consult with an experienced real estate attorney before entering into one. The attorney should review all of the details of the agreement and conduct a thorough due diligence on the buyer. They will also check for any escape clauses that may be included in the contract.


A vendor take back mortgage can be a game changer for both parties involved. The buyer can enjoy some much needed down payment assistance and the seller might get a lump sum from the sale which could be used to upgrade the property or sock away for a rainy day fund. The best part is that the transaction is nearly seamless for both parties and a win-win for all. A little planning goes a long way and the right real estate professionals are on hand to make this happen.

The best suited to your needs is a local real estate agent with a proven track record and a solid referral network to boot. Having a clear understanding of your client’s goals and putting together a solid strategy to accomplish them is the key to success in any transaction.

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