The solution

Jeff and Lisa (real names) spend eight months trying to flog their spiffy rancher north of the city. Two price reductions, lots of showings, no cigar.

They wanted to downsize, stop worrying about three acres of lawn and turn equity into cash flow so they could retire, rent a lux condo in the city and enjoy urbanity without a lawn tractor or bug spray.

Finally, Barry (not his real name) showed up. The polar opposite. He wanted to escape the Big Smoke, get a couple of dogs, an F-150 and a Harley. He was ready to offer. They were primed to sell. But Barry couldn’t unload his city property and was a million short.

The solution?

J&L took a VTB. They sold and left. Barry moved in and promptly bought a female GSD. The vendors got income and security. The buyer took over the acreage with lots of time to sell his urban house. Win, win, win.

So let’s talk about vendor take-back mortgages. This is what Jeff and Lisa agreed to. They took Barry’s cash upon closing then extended a million-dollar loan at 6% with a three-year term. It was registered as a first mortgage, secured by the property with a conventional 25-year am, and completely open.

Now Barry could wait for the lousy city real estate market to recover. If a buyer came along soon, he could pay off the mortgage. If it took three years, so be it. Jeff and Lisa got a bunch of cash, could get on with their retirement, and had income of $60,000 – more than enough to cover rent. And they knew their million-dollar loan was fully secured by residential real estate.

VTBs were common in the bad old days when mortgages cost 8%, 10% or more (some of us remember 22%). Buyers couldn’t buy because the banks would not lend, while costs were prohibitive. So private deals flourished. Sellers with lots of equity could finance their buyers, and the market kept moving.

Today mortgages are cheap by comparison. But the banks have responded to Tariff Man and macroeconomic uncertainty by tightening their lending at the same time the real estate market is freezing over in the summer sun.

For example, BMO created mortgage broker panic some weeks ago when it announced new restrictions on lending to folks in the aluminum and steel industries. Yup, because of that crippling 50% tariff on US imports.

Here’s how an industry publication (Canadian Mortgage Trends) described it:

Citing the tariffs and a “turbulent economic landscape,” BMO BrokerEdge released a memo to broker partners announcing that steel and aluminum are now part of BMO’s growing list of “Limited Appetite” industries, which already includes sectors like construction, transportation, retail, manufacturing, and entertainment. Self-employed borrowers in the affected industries now face tighter lending criteria, including a total debt service (TDS) ratio capped at 42% (from 44%), a gross debt service (GDS) ratio limited to 39%, and a requirement that at least one applicant have a minimum credit score of 750.

Yes, self-employed people, commissioned salesfolk, entrepreneurs, gig workers, business owners, contract employees and others – making up a big chunk of the labour force – have always faced more lender scrutiny. But now the industry or sector that borrowers work in seems just as crucial for getting credit. That list includes construction, transportation, entertainment, retail sales, banking and finance, manufacturing, natural resources, whole trading, utilities – and now steel and aluminum.

So once again, VTBs have emerged as one way to grease a deal. To get around the risk-averse trad lenders. To keep the market alive.

The stats confirm.

In just two years VTB volume swelled from $767 million to $3.5 billion. This is no coincidence, happening at the same time the banks tightened up. OSFI tells us new loan originations among the big guys has fallen 17% year/year. Yes, the housing market is slow, but lenders are also pulling in their horns as the Age of the Orange Guy unfolds. Private lending has shot ahead to fill the gap – up 14% recently. Non-traditional mortgages now account for 15% of all new lending in Ontario, for example.

So, should you consider this?

Of course. Any real estate lawyer can set up a VTB. Fast. Cheap. If you’re buying and need financing, make an offer with a VTB clause. If you’re selling and a potential buyer can’t get a bank to dance with her, consider taking back financing. There’s more risk all round, naturally, but there are ways of containing it. And your selling price can be higher.

Take-back financing, like commuting a work pension or grabbing early CPP payments, is not for everyone. But it could mean the buyer closes without fulfilling bank requirements or jumping over the stress test hurdle. The seller can reap a steady income with a decent yield. And if the property sold is not a PR, capital gains tax might well be deferred.

Be creative. The times demand it.

About the picture: “Just wanted to share a wonderful memory of my youth that was entwined with dogs,” writes Scott. “I spent 7 winters guiding dogsled trips into Algonquin Park in the early to mid 2000’s. This picture would probably be 2004/05…back when the world was sane, you probably didn’t write blogs and I was young and carefree.  I had no money, lived in my car but was generally very happy and had time to indulge things like dogsledding.  Now, I have money, a job and family which I love but time seems to be such a precious thing.

“I have nothing in particular for you to write about but really just wanted to introduce to you (starting from the front) Swift (my lead dog), Thumper (2nd row), Garth (beside Thumper that you can only see his black legs), Panther (3rd row behind Thumper), Dickson (3rd row), Micah (back row behind Panther) and Rudy (back row, red dog).  That was a powerhouse team that I loved to work with and was the product of many years of training.

“Unfortunately, the company is no longer, but if any blog dogs once enjoyed a trip with Chocpaw Adventures in South River, Ontario or were once guides there…this ones for you. RIP Paul.  And yes, this picture is so old it was taken on slide film and then printed on real paper.  I had to take a picture of it with my cell phone to share with you.  It proudly hangs in my office to remind me of what I once did.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.

Source: https://www.greaterfool.ca/2025/07/09/the-solution/