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Vendor Take Back Mortgage

Vendor Take Back Mortgages Can Help If You Don’t Have a Down Payment

When it comes to unique circumstances, sometimes a unique solution is required. Vendor take back mortgages can be a creative problem-solving solution if obtaining a traditional mortgage isn’t working out for a buyer due to down payment concerns.

A vendor take back mortgage (VTB) occurs when a seller plays a dual role and becomes a lender at the same time. A seller can lend a buyer the funds needed to purchase a property (residential or commercial) and register a secondary lien for the amount.

For recently discharged bankrupts or people with no down payment, a non-existent or poor credit history, a VTB can make home ownership possible in the most challenging circumstances.

It’s no secret that breaking into the real estate market can be hard for some borrowers. The Canadian government has not made it any easier for new borrowers with the introduction of the mortgage stress test.

Whether your credit is bad, you’re new to Canada, or you simply haven’t had much time in life to build a credit history yet – you need an option to purchase that will help you break in.

The Mortgage Brokers Network can help you decide if a vendor take back mortgage is the right solution for you. We’ve been helping Canadians break into the housing market for more than 30 years.

Our home financing expertise will help you or your business find the right lending solution to make your dreams of ownership come true.

You might be investing in your first home or perhaps making a commercial investment, either way we can help you make the important decisions that will meet your goals.

How Does a Vendor Take Back Mortgage Work?

If you want to buy a property but don’t have access to extra funds for your down payment you might want to consider a vendor take back option.

Your bank may not be able to approve a loan that will help you come up with a down payment and you may not have the ability or time to save up.

Vendor take back mortgages can circumvent this problem in exchange for a claim to some of the equity in your property.

The vendor who advances the funds to you will register a charge against your property just like your primary mortgage lender will. Once you’ve paid the loan off in full (with interest) your vendor will discharge themselves from your property.

In many cases a vendor take back mortgage is offered at a lower rate than market value to help facilitate a quick sale for the buyer. Terms, penalties, and interest rates are all negotiable while you work out the details of your VTB.

The Advantages of Vendor Take Back Mortgages

Both the buyer and seller can find advantages to a VTB arrangement. As a buyer you can access a larger mortgage than your bank may be willing to advance. As a seller you can charge interest and make a higher profit off of the sale of your property.

A property that isn’t selling may also be easier to move if a seller is able to open it up to a wider variety of potential buyers. In addition to these benefits:

  • A tax deferral with lower capital gains can work to a seller’s advantage. By not taking 100% of the sale proceeds up front curing one single tax year, a seller can be incentivised to spread out their tax obligation over multiple years.
  • VTBs can be cheaper than other alternative financing solutions for buyers while still yielding a higher rate of return for sellers than other traditional investment sources such as savings bonds.
  • A buyer can benefit from lower CMHC fees and premiums. If you want to finance at a higher ratio than a conventional lender would afford you (more than 80%) a VTB can help you put down a higher initial payment to avoid mortgage insurance premiums.

For investors or businesses looking to purchase a rental property or own multiple properties, a VTB can also help. Rather than coming up with 20% to make a down payment from your own asset pool, you can invest with a vendor’s help instead of liquidating assets that are generating wealth.

Why Would a Seller Want to Help Me?

In addition to the aforementioned benefits/advantages for both buyers and sellers, a seller’s most obvious reason to want to help is to ease the sale process of a property they no longer want or need.

While the risk in this type of lending is really a seller’s risk, it is typically worth it to avoid the additional costs of carrying a property and all of its associated costs.

Even though your primary mortgage lender will be first in line if you default on your mortgage and a foreclosure ensues, from a cash flow perspective a lender may be inclined to take a calculated risk.

Key Information for Business Acquisitions

Commercial real estate can be tricky and a commercial mortgage application is more involved than a residential mortgage application.

A vendor take back mortgage can be useful in easing the process of a business acquisition. Repayment terms may be negotiated to be shorter than a bank loan with a lower interest rate.

Unsecured assets may be included in the transaction such as equipment, retail fixtures, or intellectual property – assets that may or may not be included in a small business loan at the bank.

A lender with business expertise can be engaged to assist in the transition to a new owner who has little to no experience in the industry.

Finally, because a buyer will have an ongoing relationship with the seller, there is a greater likelihood of recovering unexpected costs or undisclosed liabilities discovered after the sale.

Trust the Mortgage Brokers Network to Help You with Vendor Take Back Mortgages

With the cost of real estate today many Canadians find it difficult to come up with the capital needed to get started.

Regardless of your circumstances, we can help you get into the real estate market if a vendor take back mortgage is your solution for coming up with a down payment.

Let our decades of expertise providing mortgage services to Canadians work for you.

Book a free consultation with a member of our team to learn more about how we can help. Discover what 30 years of practical experience and a trusted network of lenders can do for you, contact us today.

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Term Posted Rate Our Rate Claim This Rate
Home Equity Line of Credit Prime +1% Prime +.50% Claim Rate
Fixed 1 Year 4.50% 3.09% Claim Rate
Fixed 2 Year 4.65% 3.39% Claim Rate
Fixed 3 Year 4.65% 3.79% Claim Rate
Fixed 4 Year 4.65% 3.99% Claim Rate
Fixed 5 Year 4.89% 4.14% Claim Rate
Variable 5 Year 5.80% 3.2% (prime -.95%) Net Rate 2.25% Claim Rate
Fixed 10 Year 5.90% 4.54% Claim Rate