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Helping a loved one make the transition from their own home into an aged-care facility can be an emotionally challenging time. It can also be financially challenging, as the cost of high-quality accommodation does not come cheap.
The traditional approach to funding aged-care accommodation was to sell the family home, but in recent years several aged-care home loans have become available to help you cover these important expenses.
Since the Living Better Living Longer reforms came into force in July 2014, access to aged-care accommodation in Australia has been based on a “user pays” system. The amount that older Australians need to pay for aged-care accommodation is based on an income and assets test. If your income and assets are below a certain amount then the government will cover your accommodation costs, but if you can afford it you will need to pay for accommodation out of your own pocket.
The main charge to be aware of is the Refundable Accommodation Deposit (RAD). An upfront lump sum payable to the aged-care facility, the RAD amount is set by the nursing home and averages $350,000. However, depending on the facility chosen and where it is located, it’s not uncommon for the RAD to exceed $500,000 and even push up towards the $1 million mark.
You can pay the RAD in full when first entering an aged-care facility, while you also have the option to make an ongoing rental-style accommodation payment, known as a Daily Accommodation Payment (DAP) or a combination of the RAD and DAP.
Then there are care fees to consider. A basic daily fee applies to everyone and covers expenses such as meals, power and laundry. This fee is 85% of the single person rate of the basic age pension, which at the time of writing was $49.07 per day. Depending on your financial position, an additional means-tested care fee may also apply, which at the time of writing was capped at $26,380.50 per year.
An aged-care home loan is a loan designed to help you fund the cost of aged-care accommodation. These loans typically take the form of reverse mortgages, also known as equity release loans, which allow you to pay for aged-care accommodation costs without having to sell your family home.
A reverse mortgage allows the borrower to release some of the equity in the family home to pay for the cost of aged-care accommodation. No regular repayments are required as the interest on the loan is capitalised onto the loan balance each month.
You can then repay the amount borrowed, along with any loan fees and interest that has accumulated, when the home is sold at a later date.
Although loan features differ between reverse mortgage providers, aged-care home loans usually boast the following features:
If an aged-care reverse mortgage isn’t the right solution for you, there are a few other options you might like to consider to help pay for the cost of nursing home accommodation:
As you can see, there are several factors that need to be taken into account when deciding whether an aged-care loan or one of these other options is the best choice for you. Seek financial advice from an expert to ensure that you make the right decision.
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