An aged care funding options comparison explains RADs, DAPs, home equity and family support, helping protect choice, comfort and cash flow for families.
A move into residential aged care can bring relief, concern and a great many financial decisions at once. An aged care funding options comparison gives you a clearer way to look at those decisions: not simply by asking what is cheapest today, but by considering what preserves choice, cash flow and peace of mind over time.
For many older Australians, the family home is both their most valuable asset and a place filled with history. That can make it difficult to decide whether to sell, retain or borrow against it to fund aged care. There is no single right answer. The right approach depends on your care needs, family circumstances, pension position, other assets and how important it is to keep the home.
Before comparing funding methods, it helps to separate the costs. In a government-funded residential aged care home, you may be asked to pay a basic daily fee. Depending on your means assessment, there may also be a means-tested care fee and an accommodation contribution.
If you are required to pay for accommodation, the home will generally offer a choice between a refundable accommodation deposit (RAD), a daily accommodation payment (DAP), or a combination of the two. A RAD is a lump sum, refundable when you leave the home less any agreed deductions. A DAP is an ongoing daily payment, calculated using the amount of RAD you have not paid.
This distinction matters. Paying more as a RAD can reduce the ongoing DAP and ease pressure on monthly income. Yet using all your available savings for a RAD may leave little room for medical costs, personal expenses, home maintenance or a financial buffer for your spouse.
Using cash savings, term deposits or investments is often the most straightforward option. There is no interest to pay and no loan application process. It may suit someone with substantial accessible funds who wants to minimise ongoing accommodation payments.
The trade-off is liquidity. Once a large RAD has been paid, that money is tied up until the resident leaves care or the accommodation agreement ends. While the RAD is generally refundable, it may not be readily available when an unexpected expense arises. Drawing down investments can also reduce income and may affect the financial security of a spouse who remains at home.
For this reason, it is worth looking beyond the RAD itself. A comfortable funding plan should leave enough accessible cash for day-to-day living, insurance, rates, repairs and the things that make life enjoyable.
Selling the home can provide a clear source of funds for a RAD and may remove the practical burden of an empty property. It can be appropriate where nobody intends to return home, there is no spouse or protected person living there, and keeping the property would create stress or costs the family does not want to manage.
However, a sale is permanent. It ends the option of returning home if circumstances change and removes an asset that may have been providing a sense of security or potential rental income. Depending on your circumstances, selling the home may also change how your assets are assessed for aged care fees and pension purposes.
There can be emotional considerations too. Families sometimes feel pressured to sell quickly after a health event. Taking time to understand the agreement, likely care costs and alternatives can help everyone make a calmer decision.
Rather than paying a large RAD, some people choose a DAP and retain their home. This can be useful if the home is occupied by a spouse, if there is a genuine possibility of returning home, or if the family needs more time before deciding what to do with the property.
The key consideration is affordability. A DAP is an ongoing expense, so it needs to sit comfortably alongside the basic daily fee, care fees and personal spending. If payments are made from savings alone, those savings may reduce over time. This option can provide flexibility, but it should be reviewed with a realistic view of how long care may be needed.
Renting the property may create income that contributes to aged care costs while allowing you to retain ownership. For some families, this is a practical middle ground between selling and leaving a home vacant.
It does come with responsibilities. Someone needs to organise the property, tenants, maintenance, insurance and tax records. Rental income can also affect aged care means testing and Age Pension entitlements, so the net result may be different from the headline rent received. A vacant home, meanwhile, still requires upkeep and insurance, which can be easy to overlook.
For homeowners aged 60 and over, a reverse mortgage may provide funds for a RAD, a part-RAD, care fees or a cash reserve without requiring an immediate sale of the home. Instead of regular repayments, interest is generally added to the loan balance and repaid when the home is sold, often after the last borrower permanently leaves the property.
This can suit people who are asset-rich but need greater cash flow, particularly where keeping the home provides options for a spouse, family or future decisions. A smaller loan used alongside savings may reduce the DAP while avoiding the need to cash out every investment or sell under pressure.
There are important trade-offs. Interest compounds over time, reducing the equity left in the home. The amount you can borrow depends on your age, property value and lender criteria. You must also meet the loan obligations, such as maintaining the property, keeping it insured and paying rates. Australian reverse mortgages have consumer protections including a no negative equity guarantee, but they remain a long-term financial decision that deserves clear, personalised advice.
Golden Years Finance helps older homeowners understand how home equity options may fit alongside their aged care plan, with guidance designed to be clear and without pressure.
Adult children may offer a gift, loan or contribution towards a RAD. This can be generous and helpful, but it should be approached openly. A family contribution may affect the contributor’s own retirement plans, relationships between siblings and expectations around inheritance.
A written agreement is sensible, particularly if the support is a loan rather than a gift. It can clarify whether interest applies, when repayment is expected and what happens if the home is later sold. Independent legal and financial advice can protect both the older person and the family member providing support.
Some residents may be eligible for Australian Government support with accommodation costs after a means assessment. The Department of Human Services assessment is separate from the aged care home’s own discussion of accommodation pricing, and it plays an important role in working out what you may be asked to contribute.
The Home Equity Access Scheme may also be relevant for eligible pensioners who want to supplement income using equity in Australian real estate. It is not designed as a one-size-fits-all answer for a large RAD, but it may help with ongoing expenses in particular circumstances. Eligibility, repayment and pension impacts should be checked carefully.
A good comparison looks at more than the initial amount needed. Ask how each choice affects monthly cash flow, the Age Pension, aged care fees, ownership of the home, investment income and the amount likely to remain for later needs or family.
It is also useful to test different scenarios. What happens if the resident stays in care for several years? What if a spouse remains in the home? What if the property needs repairs before it can be rented or sold? What would happen if care needs increase and extra personal services are wanted?
The most suitable approach is often a combination. For example, a family may use part of their savings for a partial RAD, retain a sensible emergency reserve and use a carefully sized home equity release amount to reduce the ongoing DAP. Another family may keep the home for a year while care arrangements settle, then decide whether renting or selling best supports their longer-term position.
Aged care agreements and funding choices can affect your finances for years. Before accepting an offer, consider speaking with an accredited aged care financial adviser, your solicitor and a lending specialist if home equity is part of the picture. They can help you understand the means assessment, accommodation agreement, pension implications and the full cost of each option.
You do not need to decide the future of the family home in one difficult conversation. With patient, clear guidance, you can build a funding plan that supports quality care while helping you and your family live life on your terms.
