Carry-Back Loans
A Carry-Back Loan is where the vendor provides a loan to the buyer to assist him with the purchase of a property.
For example, if a purchaser has a 10% deposit, but the bank requires a higher deposit of 20% or even 35%., then a Vendor loan may be used to bridge the gap.
Under these circumstances, the purchase then has two loans to repay…one to the bank and the other to the vendor.
The Carry-Back Loan could be for a term of 6 months, 1 year, or up to 5 years after settlement. It might be more or less than 10% of the price. The interest rate is usually a little more than the underlying bank loan interest rate.
A Carry-Back Loan is secured on the title by a second mortgage or a caveat. It is regularly used by vendors of regional properties, high rise apartments, damaged properties and commercial properties where the bank’s lending practices are often stricter and less flexible.