Moving into residential aged care involves several important financial decisions. One of the biggest is how to pay for accommodation.
The average room price in Australia is now around $570,000. However, this does not necessarily mean you need to pay the entire amount upfront.
Understanding your accommodation payment options
Residents generally have a choice in how they pay for their accommodation.
You can pay a Refundable Accommodation Deposit (RAD) as a lump sum. Alternatively, you can make ongoing Daily Accommodation Payments (DAP). You can also choose a combination of the two.
The option you choose can make a significant difference to your ongoing costs and overall financial position.
Where do interest rates come in?
If you choose to pay some or all of your accommodation cost as a DAP, the government-set Maximum Permissible Interest Rate (MPIR) helps determine your payment.
As interest rates have increased, so too has the MPIR. As at 1 July 2026, the MPIR is 8.43% per annum.
As a result, daily payments may now cost considerably more than they did when interest rates were lower.
Generally, the MPIR that applies when you enter care remains locked in. However, a new rate may apply in some circumstances, such as when you move rooms.
Inflation-linked indexation every six months may also affect daily payments.
Why your payment strategy matters
There is no single payment option that will suit everyone.
Paying a larger RAD may reduce your ongoing accommodation payments. However, you may need to access savings or investments to fund the lump sum.
Alternatively, paying a DAP may allow you to retain more of your capital. However, it can create a higher ongoing cash-flow requirement.
Your decision may also affect your investments, Age Pension position, cash flow and the value of your estate.
For this reason, it is worth considering how each option fits into your broader financial position before making a decision.
Need help understanding your aged care options?
Decisions about aged care accommodation can have a significant impact on your finances.
At Forman Financial Services, we provide specialist aged care financial advice. We can help you understand your options and make informed decisions based on your individual circumstances.
Planning for aged care for yourself or a loved one? Contact us here to discuss how we can help.
Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It’s also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.