“The rate is specified in the sale contract and is almost always punitive, being higher than standard loan rates.”
Penalty interest on a delayed property settlement in Victoria is not the RBA cash rate — it is the rate stipulated in the sale contract, and it is designed to be punitive. Understanding this rate before exchange protects you from a surprise if settlement complications arise.
How the rate is set
The LIV standard contract used in Victoria typically specifies a penalty interest rate in the special conditions. The most commonly used rate is the penalty interest rate published by the Law Institute of Victoria, which reflects a margin over the current cash rate. At a cash rate of 4.35%, a penalty interest rate in the range of 9–11% per annum is typical — confirm the specific rate in your contract.
How the cost accumulates
Penalty interest runs on the full purchase price — not just the balance outstanding after deposit. On a $750,000 purchase at a 10% penalty rate, delay costs approximately $205 per day. A two-week delay costs approximately $2,870. A one-month delay costs approximately $6,164. These are daily-running costs and they add up quickly.
Who pays — and who doesn’t
Only the party in default pays penalty interest. If the buyer’s lender is late issuing loan documents through no fault of the buyer, a reasonable vendor may agree to an extension without enforcing penalty interest. Documenting the reason for delay and communicating early with the vendor’s representative preserves negotiating room.
Protecting yourself before exchange
Request that your conveyancer review the penalty interest rate in the contract’s special conditions before you sign. Ask whether the contract includes any grace period before penalty interest commences. If your finance is not formally approved before auction, consider whether the penalty interest risk of a delayed finance outcome is manageable for your situation.
→ You may wish to speak with a licensed mortgage broker to assess your personal circumstances. This is general information only. Individual circumstances vary and scheme details change regularly. Verify current eligibility, caps, and terms with official sources before making decisions. Speak with a licensed mortgage broker for advice tailored to your situation. All loans are subject to lender approval.
Sources: Law Institute of Victoria, Contract of Sale (Residential) — Penalty Interest; Vendors and Purchasers Act 1958 (Vic); State Revenue Office Victoria; ASIC MoneySmart, Buying a Home 2025.
