Aged Care Loans: Plan for a smooth transition to aged care
The decision to move into aged care is never an easy one. But it can be particularly difficult when there are complex, and often expensive, financial arrangements to consider.
An Aged Care Loan can help you unlock the equity in your home and use this money to:
- pay a deposit to enter an aged care facility
- pay ongoing living expenses
- prepare your home for rental or sale
How does an Aged Care Loan work?
An Aged Care Loan is designed to allow homeowners – aged 65 or over – to borrow money and use their home equity as security.
The borrowed money can be accessed as a lump sum payment, regular payments or a flexible cash draw facility. You can even request a combination of payment options. For example, you can take a portion as a lump sum, a portion as regular payments and the rest as flexible draw facility. And, you can change your arrangements at any time after your loan has settled; bearing in mind that should you decide, for example, to take more from your flexible draw, then you will need to reduce either the amount of your regular payments, or how long you want them to last.
There are some restrictions around how the money can be spent, but it’s generally used to cover the costs associated with a move into aged care.
An Aged Care Loan allows you to use the equity in your home to fund your aged care needs – without having to sell your home.
What does aged care cost?
Aged care costs can vary depending on your circumstances, but the primary cost of entering an aged care facility is typically the ‘Refundable Accommodation Deposit’ (RAD) – which can exceed $500,000.
There may also be a range of other costs an aged care resident needs to meet, such as a ‘Basic Daily Fee’, a ‘Means Tested Care Fee’ and an ‘Additional Services Fee’. If an aged care resident elects not to pay a full RAD, there will also be a ‘Daily Accommodation Payment’ (DAP).
Why choose an Aged Care Loan?
Set up an initial draw, monthly draw or flexible draw facility (or a combination of all three) – with the freedom to change your arrangement at any time.
Competitive interest rates
Access competitive interest rates and pay no monthly loan account keeping fee.
How is interest charged?
Interest is charged on the amount you borrow, but unlike most other loans, you don’t have to make regular repayments. Instead the interest is added to your loan balance and you will pay interest on interest, plus on any fees or charges added to your loan.
The effect of paying interest in this way, without making any or many repayments, is that the loan balance will increase over time. This will impact the value of the equity remaining in your property.
How is the loan repaid?
The loan must be repaid in full (including interest and fees) at the end of the loan term, when the security property is sold, or within 6 months of the last borrower passing away. Partial or full repayments can be made at any time during the loan term.
What else should I consider?
Before you take out an Aged Care Loan, it’s important you understand how aged care loans work, and the issues to consider in deciding if an aged care loan is right for you, such as:
- Will other people living in your home be affected?
- Will you be able to leave your children an inheritance?
- Are there alternatives more appropriate for you?
- Will your pension change?
Do I need to get advice?
It is recommended you obtain independent legal advice and highly recommend that you seek independent financial advice.