What Is a Vendor Take Back Mortgage (VTB)

A Vendor Take Back, often called a VTB, is a form of seller financing where the seller provides a mortgage to the buyer for part of the purchase price. This type of financing can benefit both buyers and sellers when structured properly and used in the right situations.

VTBs are most commonly seen in investment transactions and in markets where traditional financing may be more restrictive.

What a Vendor Take Back Is

A Vendor Take Back is a loan from the seller to the buyer that helps finance the purchase of a property.

Key characteristics include:
• The seller acts as a lender for a portion of the purchase price
• The VTB is registered on title as a mortgage
• It can be in first or second position
• Terms are fully negotiable

VTBs are often used when bank financing alone does not fully support the transaction.

When a VTB Is Commonly Used

VTBs are more common when:
• A seller has significant equity in the property
• A buyer cannot obtain full financing through traditional lenders
• The property is difficult to finance conventionally
• Market conditions are slower or favour buyers

They can also be useful as a short term financing bridge while a buyer improves the property or stabilizes income.

Key Terms That Can Be Negotiated

Unlike traditional mortgages, VTBs are highly flexible.

Negotiable terms include:
• Loan to value
• Interest rate
• Term length
• Open or closed structure
• Interest only or principal and interest payments
• Fees or bonuses

Because of this flexibility, VTBs should always be carefully structured with professional advice.

Benefits for Buyers

For buyers, a VTB can:
• Reduce reliance on traditional lenders
• Allow higher overall loan to value
• Help bridge financing gaps
• Enable purchases that might not otherwise be possible

VTBs are often used temporarily, with the intention of refinancing once the property is improved or income increases.

Benefits for Sellers

For sellers, a VTB can:
• Help sell a property that may otherwise struggle in the market
• Create a secured, passive income stream
• Potentially command a higher sale price
• Allow a faster or more flexible closing

In some cases, a VTB may also allow sellers to defer a portion of capital gains, depending on their tax situation.

Capital Gains Deferral Considerations

When structured correctly, a VTB may allow a seller to defer part of their capital gain over time rather than recognizing it all in the year of sale.

In general terms:
• Deferral is tied to the portion of proceeds represented by the VTB
• The deferral is limited and declines annually
• Professional tax advice is essential

The mechanics can be complex and should always be reviewed with an accountant.

Important Seller Considerations

VTBs are not suitable for every seller.

Sellers should consider:
• Whether they have sufficient equity to support the VTB
• Whether they need immediate access to sale proceeds
• Their comfort with buyer credit risk
• Their willingness to enforce the mortgage if needed

Confidence in the buyer and the asset is critical.

Important Buyer Considerations

Buyers should understand that:
• VTB interest rates are typically higher than bank rates
• Over leveraging can increase risk
• Refinancing at maturity is not guaranteed
• Exit strategy matters

VTBs work best when there is a clear plan for repayment or refinancing.

Final Thoughts

A Vendor Take Back can be a powerful financing tool when used correctly. It is not a replacement for traditional financing, but rather a strategic option that can benefit both buyers and sellers in the right circumstances.

Because of the complexity and risk involved, VTBs should always be structured carefully with professional guidance.