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Summary: A vendor take-back (VTB) mortgage is seller financing: the seller lends the buyer part of the purchase price and registers a mortgage on title to secure it. Title still transfers to the buyer at closing, and a VTB usually sits behind the bank's mortgage in second position.
VTBs turn up in move-up deals, investment purchases, and situations where a buyer needs financing a bank won't fully provide. If your offer includes one, here is how it works in Ontario from closing to discharge, and what your lawyer handles along the way.
What is a vendor take-back mortgage?
A vendor take-back mortgage is an arrangement where the seller lends the buyer some or all of the purchase price, and the buyer repays the seller over time. Ownership transfers to the buyer at closing, so you own the home from day one. The seller simply registers a mortgage (a charge) against the property to secure repayment, and that charge stays on title until the loan is paid off and discharged.
That is different from an agreement of purchase and sale where a seller keeps title until conditions are met. With a VTB, title is the buyer's at closing; the seller holds a secured debt, not the property.
How does a VTB work, from closing to discharge?
The terms — amount, interest rate, amortization, term length, and prepayment rights — are negotiated inside the agreement of purchase and sale (APS), and they carry the same weight as the price itself. From there the deal moves through a few clear stages:
Closing. The two lawyers register the VTB charge on title, and the VTB amount shows on the statement of adjustments as a credit to the buyer for what the seller is lending back. The buyer also signs a promissory note, the personal promise to repay.
Payments during the term. The buyer pays the seller per the note, either interest-only (lower payments, full principal due at maturity) or amortizing (each payment chips away at the balance).
Payout. Most VTBs are paid off at or before maturity through a refinance, a sale, or savings, for the outstanding principal plus accrued interest.
Discharge. Once it is paid in full, the seller provides a discharge and your lawyer registers it with Ontario's land registry. Until that discharge registers, the VTB stays on title and can hold up a future sale or refinance.
Where does a VTB sit, and how does it compare to other options?
When a VTB is combined with a bank loan, the bank almost always requires first position, so the VTB is registered as a second mortgage behind it. Priority matters: in a default, the first-position lender is paid from enforcement proceeds first, so a second-position seller carries more risk, which is usually reflected in a higher VTB interest rate. For you, the practical point is that any future refinance or sale has to pay out both charges, and your lawyer registers both discharges.
Vendor take-back (VTB) | Assumed mortgage | Private lender |
Seller lends part of the price, secured by a charge | Buyer takes over the seller's existing mortgage | An independent third party lends the gap |
A new loan, with the seller as lender | An existing loan, same institutional lender | A new loan, lender is not the seller |
Often second position behind a bank | Keeps the original lender's position | Position varies by deal |
Title transfers to the buyer at closing | Title transfers; the loan continues | Title transfers to the buyer at closing |
What documents does your lawyer prepare, and what should you confirm?
A VTB closing involves a few specific documents beyond a standard purchase:
The mortgage (charge) registered on title. Secures the seller's interest and sets the principal, rate, term, and enforcement rights.
A promissory note. The buyer's personal promise to repay, which can survive even if the property's value drops.
The statement of adjustments. Reconciles the price, deposit, VTB credit, and prorated costs to the balance due on closing.
The lawyer's reporting letter. Confirms the VTB was registered, explains the priority of charges, and sets out your payment and discharge obligations.
Before closing, confirm a few things with your lawyer: which position the VTB charge is in, the exact payout figure at maturity, the prepayment rights (can you pay it down early, and at what penalty), and exactly who provides the discharge and what triggers it. The full closing package always has more in it than the mortgage — our guide to what documents you sign when you purchase a property walks through the rest.
Does a VTB change your land transfer tax?
No. Ontario Land Transfer Tax (LTT) is calculated on the full value of consideration for the property, which includes any VTB financing. Choosing seller financing instead of a bank loan does not lower the taxable amount, per Ontario's land transfer tax rules. If you are buying in Toronto, the Municipal Land Transfer Tax (MLTT) applies on top, and the same principle holds.
The tax treatment of the financing itself is a separate, fact-specific question. A seller may recognize capital gains differently when proceeds arrive over time, and a buyer's VTB interest may be deductible only if the property earns income. Both are areas to confirm with an accountant rather than treat as a given, especially for a VTB between family members, where the Canada Revenue Agency's prescribed-rate rules can apply.
Frequently asked questions
Is a VTB a first or second mortgage?
When it is combined with a bank mortgage, the VTB is almost always a second-position charge behind the bank. If the seller finances the entire purchase with no bank loan involved, the VTB can be registered in first position.
How do you discharge a vendor take-back mortgage in Ontario?
Once the VTB is paid in full, the seller or their lawyer prepares a discharge of the charge, and your lawyer registers it in Ontario's electronic land registry. Confirm who prepares the discharge, and what documentation is needed, before you close.
Do I still pay land transfer tax with a VTB?
Yes. LTT is based on the full purchase price regardless of how it is financed. A VTB does not reduce your land transfer tax.
Can a VTB be paid off early, and are there penalties?
It depends on the promissory note. Some allow prepayment without penalty; others charge an interest rate differential or a fixed fee. Review the prepayment clause before signing the agreement.
How is a VTB different from an agreement of purchase and sale where the seller keeps title?
With a VTB, title transfers to the buyer at closing and the seller holds a registered mortgage. In an arrangement where the seller retains title until conditions are met, ownership and risk sit differently. They are not the same structure.
About the author
Joel Fox is a co-founder and COO at Ownright. He helps run the firm's day-to-day work on Ontario residential closings, refinances, and sales, and writes regularly to demystify the parts of a transaction that most homeowners only encounter once or twice in their lives.
At Ownright, we focus entirely on Ontario residential real estate law, including the non-standard financing stacks where a vendor take-back comes into play. We register and discharge the VTB charge, prepare the statement of adjustments, and coordinate with the other side's lawyer so the financing lines up at closing. You can start your closing online or get in touch with any questions. (When the VTB is paid out later, our refinance closing guide covers that step.)
Legal references: Land Transfer Tax Act, R.S.O. 1990, c. L.6 (tax on the value of consideration); Mortgages Act, R.S.O. 1990, c. M.40 (mortgage charges, enforcement, and discharge in Ontario).
Important note: This article is not legal, financial, or tax advice. No one should act, or refrain from acting, based solely on the information in this post or any linked materials without first seeking appropriate legal or professional advice.
