Understanding Aged Care

Article posted:Mar 14, 2013

Category: Aged care financial planning

Aged Care: Can We Keep the Family Home?

Residents of residental aged care may be asked to pay a daily accommodation fee to help cover some of the costs of aged care. This fee is generally calculated on a case-by-case basis. A resident can choose the method to pay the fee based on the following options:

1.    Pay the entire fee as a lump sum - known as a RAD (rufundable accommodation deposit)
2.    Pay the fee by instalments - known as a DAP (daily accommodation payments)
3.    Pay the fee by a combination of lump sum and instalments (a combination of RAD & DAP)

Click here to find out more about the RAD and DAP in residential aged care.

Increasingly, some residents or their representatives want to consider the option of retaining their home.

This option is potentially suitable in cases where the aged care fees are paid in part and/or paid by instalments. If some or all of the fee is paid by instalments, interest is payable on the unpaid balance.

The maximum interest rate is 8.86% p.a. This rate is set for the duration of instalment payments and will impact available cash flow. If a person's home is retained and they utilise the 2nd and 3rd options above, and they rent out their former principal home, the rental income will be exempt from the Centrelink income test. The rental income is taxable however.

The value of the home in these circumstances will also be exempt as an asset for Centrelink/DVA pension purposes. There may also be an opportunity for a resident to consider the use of a reverse mortgage to fund the lump sum component of their accommodation bond.

A reverse mortgage is a loan secured against your home that allows you to tap into the equity of your home. A person may get access to that equity either as a lump sum or have the ability to drawdown on the loan on a regular basis.

However, most reverse mortgage providers in Australia stipulate that a person must continue to reside in their home if they wish to use the product. Therefore, the use of reverse mortgages to fund residential aged care in the current market is quite limited.

If you decide that selling the family home is the best option for you, find out more about selling the family home for entry into aged care.

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