“Penalty interest on a settlement delay is not a flat fee. It accrues every day, and on larger purchases even a short delay adds up to several thousand dollars.” [cite: 78]
Penalty interest is charged when the party responsible for a delay has not settled by the agreed date, after any applicable grace period. [cite: 79] The rate, how it is calculated, and when it starts varies by state and by the terms of the individual contract. [cite: 80]
How it is calculated
The standard formula is: outstanding balance of the purchase price (purchase price minus deposit already paid) multiplied by the penalty interest rate, divided by 365. The result is the daily penalty cost. [cite: 82] This accrues for every calendar day of delay, including weekends and public holidays in most states. [cite: 83]
Worked example
A $750,000 property with a $75,000 deposit paid. Outstanding balance: $675,000. Penalty interest rate: 10% per annum. [cite: 85] Daily penalty: $675,000 x 0.10 divided by 365 = approximately $184.93 per day. [cite: 86] A seven-day delay costs around $1,295 in penalty interest alone. [cite: 87]
Rates by state
- WA: 9% per annum under standard REIWA contracts, backdated to the agreed settlement date after the three-day grace period. [cite: 89]
- VIC: tied to the Penalty Interest Rates Act 1983, with recent standard-form contracts applying approximately 10% per annum. [cite: 90]
- QLD and NSW: the rate is specified in the individual contract, often 10 to 12% per annum. [cite: 91] Some contracts add 2% above the prescribed rate. [cite: 92]
VIC-specific note on stamp duty
In Victoria, where the buyer is liable for penalty interest and the amount exceeds $5,000, the stamp duty assessment must be re-lodged for reassessment. [cite: 94] The State Revenue Office must be notified for amounts below $5,000 within 30 days of settlement. [cite: 95] This applies to contracts entered on or after 1 July 2022. [cite: 96]
You may consider seeking independent advice from a licensed mortgage broker or financial professional to assess your personal circumstances. [cite: 97] This information is general in nature and does not take into account your objectives, financial situation or needs. [cite: 98] Penalty interest rates and calculation methods depend on the contract and state legislation. [cite: 99] Speak with a licensed conveyancer or solicitor before settlement. [cite: 100]
Sources: KDD Settlement Agents, Penalty Interest WA; Pearson Chambers Conveyancing, Late Settlement Interest VIC 2026; Walker Pender, Delayed Settlement QLD; [cite: 101] InfoChoice, What Happens if Settlement is Delayed 2024. [cite: 102]
