Humber/Ontario Real Estate Course 3 Exam Practice

What does a seller take-back mortgage entail?

1. Buyer assumes an existing mortgage

2. Seller becomes the lender

3. Always arranged as a first mortgage

4. Buyer follows standard bank qualification steps

5. No formal agreement between buyer and seller

6. Seller maintains partial ownership

The correct answer is: Seller becomes the lender

A seller take-back mortgage is a financing arrangement where the seller of a property agrees to lend part of the purchase price to the buyer. In this scenario, the seller effectively acts as the lender, allowing the buyer to pay the seller directly under terms that they mutually agree upon. This arrangement can be beneficial for both parties; for the seller, it can facilitate the sale of the home, especially in a market where obtaining traditional financing is difficult for buyers. The seller can also earn interest on the amount financed. It is important to understand that this type of arrangement is fundamentally different from a buyer assuming an existing mortgage, where the original lender would maintain the relationship. Additionally, seller take-back mortgages do not need to be arranged as first mortgages, nor do they bypass standard qualification procedures established by lending institutions, and they always require formal agreements to ensure both parties are protected in the transaction. Lastly, the seller does not maintain partial ownership of the property in a seller take-back mortgage; instead, they receive a note and a mortgage lien against the property. Thus, the nature of the seller act as basically the lender is a central characteristic of this arrangement.