With listing volumes surging and sales hitting record lows, Toronto Real estate sellers are getting creative in 2025. With traditional bank lending becoming more stringent and buyers facing tougher credit standards, a record number of properties are now listed with “seller financing” or “vendor take back mortgages” (VTBs).
VTBs are not new, but we certainly haven’t seen them in mass in the past few decades in residential real estate deals. Vendor take-back mortgages in Ontario reached their peak popularity in the late 1980s and the early 1990s. During that time, high interest rates and stringent lending conditions made these seller-financed deals an attractive way to facilitate property sales. Once interest rates dropped, the practice largely fell out of favor—until recent market conditions have sparked a renewed interest in VTBs.
This creative financing method not only opens up new opportunities for buyers but also provides sellers with a unique way to unlock value from their property sales.
What Is a Vendor Take Back Mortgage?
In plain terms, a vendor take back mortgage is an arrangement where the seller acts as the lender.
Instead of receiving the full sale price at closing, the seller finances part of the purchase price for the buyer, and the buyer makes regular payments—usually with interest—directly to the seller over time.
For example, if a property sells for $500,000, a seller might receive $300,000 upfront while “lending” the remaining $200,000 to the buyer. The buyer then repays that $200,000 gradually, often at a negotiated interest rate.
This arrangement is similar to a traditional mortgage, except the financing comes from the seller rather than a bank or other lending institution. It’s a practical solution for buyers who might not qualify for conventional loans and a way for sellers to generate ongoing income and potentially lower their immediate tax burden.
How VTBs Are Changing the Market in 2025
The 2025 market is witnessing an unprecedented surge in VTB deals. Several factors contribute to this trend:
Stricter Bank Lending: With banks tightening their credit requirements, many buyers find it challenging to secure a traditional mortgage. Seller financing can bridge that gap.
Market Flexibility: Sellers are increasingly willing to offer creative terms to attract more buyers, especially in a competitive market.
Investor Appeal: Investors are drawn to the idea of receiving steady interest payments over time, making their sale proceeds work harder for them.
Recent articles have highlighted that this shift toward seller financing is not only making transactions smoother but is also helping sellers achieve better overall pricing for their properties .
Positives of Vendor Take Back Mortgages
Offering a vendor take back mortgage may be a helpful tool for sellers who want their property to stand out in a slower market. Namely, the benefits of a VTB are:
Attracting More Buyers:
Buyers who struggle with strict lending requirements can take advantage of flexible terms offered by the seller.
Steady Income Stream:
Instead of receiving a one-time lump sum, sellers enjoy regular payments that include interest—effectively turning the sale into an investment.
Potential Tax Benefits:
Spreading payments over several years can lower the immediate tax impact on the seller, as income is received gradually.
Flexible Terms:
Both parties can negotiate repayment terms, interest rates, and other conditions tailored to their financial needs.
VTB Negatives to Consider
Delayed Full Payment:
Sellers do not receive the entire sale price at closing, which might be a drawback if immediate cash is needed.
Risk of Default:
If the buyer fails to make payments, the seller could face financial risk or have to go through the foreclosure process.
Liquidity Concerns:
With a portion of the sale price tied up in future payments, sellers might find their capital less accessible for other investments.
Legal and Administrative Complexity:
VTB arrangements require detailed contracts and may involve additional legal oversight to ensure both parties’ interests are protected. If you are considering a VTB, you’ll need to get your Real Estate Lawyer to draft a solid agreement to protect your interests.
Real-World Example of a VTB
Imagine Jane, a homeowner looking to sell her property.
In today’s market, Jane finds that many potential buyers cannot secure traditional financing. Instead of lowering her asking price to attract cash buyers, she offers a VTB arrangement. Jane receives 70% of the sale price in cash at closing and finances the remaining 30% for the buyer, Tom.
Tom benefits by getting a deal he wouldn’t otherwise qualify for, and Jane enjoys the steady income stream from the interest payments. Both parties negotiate terms that suit their financial goals—a win-win scenario reflective of today’s innovative real estate strategies.
Frequently asked questions (FAQs)
When were vendor take-back mortgages most popular in Ontario?
They were widely used during the late 1980s and early 1990s, when high interest rates and strict lending conditions made seller financing an attractive option.
Why did buyers and sellers favor VTBs during that period?
Buyers used VTBs to bridge financing gaps when traditional lenders imposed harsh terms, while sellers found that offering a VTB could speed up sales and generate additional income through interest payments.
What factors led to the decline of VTB mortgages after the early 1990s?
As interest rates dropped and conventional mortgage conditions improved, buyers had easier access to bank financing, reducing the need for seller-financed alternatives.
Are VTB mortgages experiencing a comeback in Ontario?
Yes—recent market conditions, such as rising prices and tighter lending rules, have prompted a renewed interest in VTB mortgages as a creative financing solution for both buyers and sellers.
What are the advantages and risks of using a VTB mortgage today?
Advantages: They offer flexible financing for buyers who might not qualify for traditional loans and provide sellers with steady interest income and potential tax benefits.
Risks: Sellers face the possibility of buyer default, which could lead to foreclosure or legal disputes, and buyers may encounter higher interest rates compared to conventional mortgages
Final Thoughts
Vendor take back mortgages are a creative and increasingly popular financing option in 2025.
For sellers, this approach can transform a standard sale into a long-term investment opportunity. For buyers, it opens the door to homeownership or investment deals that might otherwise be out of reach. As with any financial strategy, it’s important for both parties to fully understand the terms, assess the risks, and consult with professionals to ensure that the arrangement is structured properly.
At Deeded, our Real Estate Lawyers can help you structure your VTB agreement to protect your interests and make closing your sale, seamless.
In an ever-evolving real estate landscape, VTBs are proving to be a powerful tool—one that illustrates how adaptability and creative thinking can lead to innovative solutions for both buyers and sellers .
Whether you’re a seller looking to maximize your returns or a buyer seeking new financing avenues, understanding the ins and outs of vendor take back mortgages could be the key to unlocking your next successful real estate deal.
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