What is it?
A vendor take-back mortgage (VTB) is a loan from the seller (the "vendor") to the buyer for part of the purchase price. Instead of paying that part in cash on closing, the buyer owes it to the seller and repays it with interest over an agreed term. It is also called seller financing.
The debt is normally registered on the home as a mortgage (in Ontario’s land registration terms, a "charge"). The seller then holds the same kind of security a bank does: the seller is the mortgagee (lender) and the buyer is the mortgagor (borrower). Once registered, the seller can use the legal remedies, including selling the home, if the buyer does not pay.
How is it set up?
- The offer states the VTB terms: amount, interest rate, term, how it is repaid (interest only or principal and interest), whether early repayment is allowed, and what rank the mortgage has (first or second).
- If the seller accepts, the terms become part of the purchase agreement. The lawyers on both sides prepare the mortgage (charge) document.
- On closing day the buyer’s lawyer registers the transfer and the VTB mortgage at the land registry office. If there is a bank mortgage, the bank is normally first and the VTB second.
- The buyer makes the agreed payments to the seller. At the end of the term the balance is paid in one lump sum (a balloon payment), refinanced with a bank, or extended by agreement.
- When it is paid off, the seller signs a discharge and the lawyer removes the mortgage from title.
When is it used?
- When the buyer cannot borrow the full amount from a bank (self-employed, short credit history, down payment slightly short).
- When the seller wants a faster sale, or prefers to receive part of the price over time with interest instead of all at once.
- When rates are high and the buyer wants to borrow less from the bank. A seller may offer a lower rate than the bank.
- It is generally said to be more common in commercial property, land and business sales than in home sales. This is only a general tendency, and terms differ from deal to deal.
How does Ontario law treat it?
The Land Titles Act (s. 93) says a registered owner may charge the land with the repayment of a sum of money, and that a registered charge gives the lender a charge on the owner’s registered interest. The principal amount must be stated in the charge. This is why a VTB must be registered by a lawyer to be protected. An unregistered promise is hard to enforce against a later buyer or other creditors.
The Mortgages Act sets out the lender’s rights when the borrower defaults. If the mortgage document itself gives a power of sale, a notice of sale cannot be given until the default has lasted at least 15 days, and the sale cannot happen until at least 35 days after the notice (s. 32). If the document gives no power of sale, the Act gives one three months after a default (s. 24), and the sale needs 45 days’ written notice first (s. 26). The mortgage document itself usually sets out more detailed terms.
Section 18 of the Mortgages Act says that if a mortgage runs longer than five years, the borrower can pay it off after five years with three months’ extra interest (this does not apply to corporate borrowers). For a shorter VTB, the prepayment rules must be written into the document.
If you are the buyer
- Write the rate, term, repayment method and prepayment rules clearly in the offer. Many VTBs end with a balloon payment of the whole balance, so think ahead about whether you can refinance with a bank at that time.
- If you also have a bank mortgage, you must tell the bank about the VTB. The bank may not allow a second mortgage, or may not count the VTB as part of your down payment. Hiding it can amount to mortgage fraud.
- If you do not pay, the seller can sell the home under the Mortgages Act. It is a debt that can cost you the home, just like a bank mortgage.
- Have your own lawyer review the documents. The seller’s lawyer works for the seller.
If you are the seller
- Check that the buyer can pay. You can ask for a credit report, income documents and the bank’s mortgage approval.
- If you are in second place, the bank is paid first. If the buyer defaults and the home is sold, you are paid only from what is left after the bank mortgage. If prices fall, you may not be paid in full.
- Enforcing a default means following the notice periods and procedures, which takes legal fees and time.
- Receiving the price over time can change your tax reporting (capital gains, interest income). Ask an accountant.
- Require the buyer to keep home insurance with you named as mortgagee. The Mortgages Act lets a mortgagee require insurance money to be applied to the debt.
Terms usually written in the offer
| Item | What to decide |
|---|---|
| Amount | The part of the price the seller lends |
| Interest rate | Per year. Usually fixed |
| Term | For example 1 or 2 years. At the end, repay the balance or extend |
| Repayment | Interest only each month, or principal and interest |
| Prepayment | Whether it can be paid off early without a penalty |
| Rank | First mortgage, or second behind the bank |
| Default | When the whole balance becomes due, and how notice is given |
VTB terms are written into the purchase agreement (usually in a schedule). The wording should be checked by a lawyer.
Example
You agree to buy a Markham house for $1,000,000. You have a $200,000 down payment and the bank will lend only $700,000. The seller agrees to lend the remaining $100,000 for two years at 6% per year (an example rate), interest only, with the principal due in full after two years. You tell the bank about the second-ranking VTB and the bank agrees.
On closing, the lawyer registers the bank mortgage first and the VTB second. You send the seller $500 a month (= $100,000 × 6% ÷ 12). Two years later you increase your bank mortgage at renewal, repay the $100,000, and the seller signs a discharge so the VTB is removed from title. The numbers are for illustration only.
Condos and pre-construction
A condo unit is registered land, so a VTB can be registered on it the same way. For a pre-construction condo you sign the builder’s agreement, and builders rarely lend buyers part of the price. For deposit schedules and the final balance on a pre-construction purchase, see "Pre-construction deposit structure".
What the law and official sources say
Quotes are copied word for word. The "In plain words" lines are our explanation, not an official translation.
A registered owner may in the prescribed manner charge the land with the payment at an appointed time of any principal sum of money either with or without interest or as security for any other purpose and with or without a power of sale.In plain wordsA registered owner can put a charge (mortgage) on the land as security for repaying money on a set date, with or without interest and with or without a power of sale. A VTB is registered this way.
Source: ontario.ca/laws/statute/90l05 · checked Oct 30, 2026
A charge that secures the payment of money shall state the amount of the principal sum that it secures. … The charge, when registered, confers upon the chargee a charge upon the interest of the chargor as appearing in the register subject to the encumbrances and qualifications to which the chargor’s interest is subject, but free from any unregistered interest in the land.In plain wordsThe mortgage must state the principal. Once registered, the lender (the seller) holds security over the buyer’s registered interest, behind anything registered earlier (such as a bank mortgage).
Source: ontario.ca/laws/statute/90l05 · checked Oct 30, 2026
“mortgage” includes any charge on any property for securing money or money’s worth; “mortgage money” means money or money’s worth secured by a mortgage;In plain wordsUnder this Act, a mortgage is any charge on property that secures money. A registered VTB from a seller is a mortgage under the Act.
Source: ontario.ca/laws/statute/90m40 · checked Oct 30, 2026
Where any principal money is secured by mortgage of land, the mortgagee, at any time after the expiration of three months from the time of default in the payment of any money due under the mortgage … has the following powers to the like extent as if they had been in terms conferred by the mortgage: … A power to sell, or to concur with any other person in selling, the whole or any part of the mortgaged property by public auction or private contractIn plain wordsThree months after a missed payment, the lender (the seller) gets a legal power to sell the property, even if the mortgage document does not say so.
Source: ontario.ca/laws/statute/90m40 · checked Oct 30, 2026
Where a mortgage by its terms confers a power of sale upon a certain default, notice of exercising the power of sale shall not be given until the default has continued for at least fifteen days, and the sale shall not be made for at least thirty-five days after the notice has been given.In plain wordsWhen the mortgage document gives a power of sale, notice can only be sent after the default has lasted at least 15 days, and the sale cannot happen until 35 days after the notice.
Source: ontario.ca/laws/statute/90m40 · checked Oct 30, 2026
Where any principal money or interest secured by a mortgage of freehold or leasehold property is not, under the terms of the mortgage, payable until a time more than five years after the date of the mortgage, then, if at any time after the expiration of such five years any person liable to pay or entitled to redeem tenders or pays to the person entitled to receive the money the amount due for principal money and interest to the time of such tender or payment, together with three months further interest in lieu of notice, no further interest is chargeable, payable or recoverable at any time thereafterIn plain wordsIf a mortgage runs longer than five years, after five years the borrower can pay the balance plus three months’ interest and end it. For a VTB shorter than five years, the prepayment rules are whatever the document says.
Source: ontario.ca/laws/statute/90m40 · checked Oct 30, 2026
Common questions
Does a VTB have to be registered?
An unregistered promise is hard to enforce against a later buyer or other creditors. Under the Land Titles Act the lawyer registers it as a charge, which protects the seller and makes the terms clear for the buyer. Always do it through a lawyer.
Can I combine a VTB with a bank mortgage?
Yes, if the bank allows it. The bank is normally first and the VTB second. You must tell the bank about the VTB; the bank may not count it as part of your down payment or may not permit a second mortgage.
How is the interest rate set?
No law sets the rate. The buyer and seller negotiate it and write it in the offer, taking into account bank rates, the term and the risk (rank, the buyer’s credit).
What happens if the buyer stops paying?
The seller can give notice and sell the home under the mortgage document and the Mortgages Act. If the document gives a power of sale, notice can be given after 15 days of default, and the sale can happen no sooner than 35 days after the notice. If it does not, the Act gives a power of sale three months after default, and 45 days’ written notice is needed before the sale. A bank mortgage ahead of the VTB is paid first. This must be done with a lawyer.
What happens when the term ends?
Whatever the document says. Usually the balance is paid in one lump sum (a balloon payment), refinanced with a bank, or extended by agreement. Buyers should talk to their bank well before the term ends.
Guides that use this term
Sources checked
- Land Titles Act, R.S.O. 1990, c. L.5, s. 93 (e-Laws) · checked Oct 30, 2026
- Mortgages Act, R.S.O. 1990, c. M.40, s. 1, 6, 18, 24, 26, 30, 32 (e-Laws) · checked Oct 30, 2026