If you are well into your twilight years and find yourself, either suddenly or gradually, needing the services of aged care, finding the finance to pay for it can be a daunting prospect, not only for the borrower but their family too. This is where the aged care loan can make a world of difference and is what some brokers have crafted their entire business around.
Finding finance in old age “Australians are witnessing the beginning of a demographic wave that will drive demand for aged care loans for decades ahead,” says Martin Barry, head of aged care products at La Trobe Financial. “ABS figures show that the number of people aged 85 and over has increased by 153% over the last two decades. This trend is only going to accelerate, with the baby boomer cohort starting retirement age in 2011 and the aged-85-plus cohort doubling by 2030.”
A population that is only getting older will inevitably increase demand for aged care, Barry says, which is good news for brokers in the aged care space. And aged care loans can sometimes be needed at very short notice.
“Currently, prospective residents must pay a lump sum RAD (refundable accommodation deposit) or a DAP (daily accommodation payment). Both can be significant, with RADs in major cities frequently over $500,000,” says Barry.
“What’s more, the trigger for a move to aged care is frequently an accident or sudden decline in health, meaning that decisions must be made and funds sourced at short notice over a period of a few months.”
He expects the RAD amount will only get larger as lack of supply fuels competition. “So the role for a trusted adviser to finance this large expense is a real win-win for clients and brokers,” says Barry.
“A targeted aged care finance product that can fund a RAD or other transitional costs has an important role to play. With around $20bn held in RADs at present and an annual demand of circa $3bn and growing, financing demand is only going to increase in the years ahead.”
Barry says La Trobe’s product is a straightforward one that allows the customer to borrow up to 50% of their property value over a seven year term, which they can repay any time.
“Interest can accrue on the loan or be paid, and the current interest rate is 5.6% per annum, which is less than the government mandated interest rate known as the Maximum Permissible Interest Rate. The security pledged for the loan is the applicant’s residential property and the Refundable Accommodation Deposit,” he explains.
La Trobe Financial’s Aged Care Loan can also be helpful if used as a form of bridging finance so that a property can be sold at a later date. In the long term, he says, “keeping the property and using finance to pay for aged care entry can improve pension and means tested care fee outcomes, so it’s important to consider this. We have recently developed a cash flow scenario comparison tool comparing a property sale against keeping the property using an aged care loan, and this is freely available to brokers and their clients”.