Payment for a parent's residential aged care accommodation costs

Technical resource

Aged care can be costly. In some cases a relative is willing to assist financially but before they do so they should first be aware of the impact on other fees.

Accommodation payments for residential aged care can be costly and difficult to meet, especially if a person has limited funds or illiquid assets. In some cases, the only significant asset owned by the person entering care is their home. Options such as selling the home, using home equity to borrow, using a reverse mortgage or other types of loans could be considered.

In some cases, a relative (usually the child of the person entering care) is willing to pay the lump sum payment, called a Refundable Accommodation Deposit (RAD). Without this financial assistance, the person may not be able to reside in their preferred accommodation or be able to afford the necessary aged care fees.

This article considers the consequences of using money lent by a relative to pay for the person’s aged care RAD, or daily accommodation payment (DAP), which is the interest charge on any unpaid RAD. It also considers whether they should borrow money to pay fully or partly their RAD, or whether a DAP should be paid as a regular amount instead.

When considering whether to pay a RAD or a DAP, the social security and aged care treatment as well as the cost of borrowing the required funds, needs to be assessed.

Means testing of the RAD and DAP

The social security and aged care means tests do not assess regular payments of the DAP by a relative. The value of the RAD paid is an exempt asset for social security purposes. So, paying for a RAD with the person’s own funds may help them receive more in Age Pension.

For aged care purposes however, the RAD is assessed as an asset even if it’s paid using borrowed funds. It makes no difference if the money is borrowed from a relative or sourced from a reverse mortgage or is an accommodation bond loan. Paying a large RAD can increase a person’s daily means-tested care fee (MTCF) significantly.


Mary is a single aged pensioner, with a home valued at $800,000 and $30,000 in her bank account. Mary enters residential aged care in January 2024 and the facility charges a RAD of $500,000 (or its equivalent in DAP, or DAP/RAD combination). The maximum permitted interest rate for the RAD is 8.34% per annum. Assume no extra services. Mary’s children wish to keep the family home because they believe it has the potential for significant capital growth. Michael, one of Mary’s three children, suggests he can lend the money to either pay a DAP regularly, or fund the RAD in full. The table below shows the differences in fees if the RAD is paid in full or where a DAP is paid regularly.

Summary of Aged Care Costs

DAP only Fees per annum

Full RAD Fees per annum

Basic daily care fee



Means tested care fee






Total aged care costs



While the total aged care fees reduce in the scenario where a full RAD is paid (because no DAP is paid), the MTCF can actually increase the overall cost of aged care. There are also other considerations when deciding how accommodation payments should be funded. These include among others, the amount borrowed, the cost of borrowing, and when the money will be repaid.

The cost of borrowing money

When the DAP is paid regularly, the borrowed amount accumulates over time compared to paying an upfront RAD, where the borrowed amount is significant right from the start.

The relative might redeem an investment (which may trigger assessable capital gains and forgone income) or borrow to fund the RAD. The interest incurred or opportunity cost borne by the relative who lent funds should also be considered.

The analysis of Mary’s example below compares the cost of interest on the RAD of $500,000 and MTCF versus the cost of paying the monthly DAP plus interest, over a period of three years using different interest rates. In the analysis the DAP equals $41,700 per annum based on a 8.34 per cent per annum Maximum Permissible Interest Rate (MPIR). The monthly DAP is $3,475 and interest is compounded monthly.

Loan interest rate

DAP + interest on DAP

MTCF + Interest on MTCF
and RAD






















Paying the RAD and the MTCF provides a better outcome unless the borrowing rate is higher than the prevailing interest rate of about 6.9 per cent per annum. Generally, if the average interest rate increases, the MPIR will also increase, as will the DAP.

The amount of RAD can make a difference

The amount borrowed should also be considered. In the scenario below we use different RAD amounts. The full RAD, MTCF and DAP are paid with borrowed money. The borrowing rate is constant at 6.9 per cent, per annum.

Loan interest rate

DAP + interest on DAP

MTCF+ interest on MTCF and RAD



















The results show that paying the RAD and the resulting MTCF is generally a similar choice when the RAD is lower.

Repayment of borrowed money

As the RAD runs into the hundreds of thousands, the relative lending the money will generally expect to have the money paid back, usually when the person passes away.

In most cases, the RAD is refunded by the aged care facility to the deceased persons estate. Arrangements should be made before the money is lent to ensure the orderly repayment of the loan.

Generally, where the lender is also the sole beneficiary of the estate it’s relatively easy to collect the loan. However, where there are other beneficiaries or claimants to the estate, the family should agree on how and when the loan will be repaid. The family should be encouraged to seek legal advice on documenting the loan and reviewing any impact on the person’s will. While there is a cost to this advice, it may prevent more costly disputes in the future.


For a resident who is not low means, the cost of accommodation in residential aged care is significant. Establishing the better option when paying aged care fees with borrowed money will make a difference to the person and their family.

Next: Assessment for entry into an aged care facility

Take the next steps

The maximum income thresholds for the Commonwealth Seniors Heath Card significantly increased from 4 November 2022 allowing more older Australians to qualify.
Technical resource
The government subsidises Home Care Packages for those who are eligible. Two types of fees may be payable depending on the package and level of income.
Technical resource
This guide covers a range of topics that you should consider when discussing aged care plans with your clients, including eligibility for government subsidised aged care, home care packages, the aged care means test and more.
Technical resource


This information has been prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (Westpac), for financial advisers only and must not be made available to any client or any other person, or attributed to Westpac or any other company in the Westpac group.

The information is an overview only and it should not be considered a comprehensive statement on any matter nor relied upon as such. Any graph, case study or example is for illustrative purposes only and is not an indication of future performance or result. Where past performance is used, please note that past performance is not a reliable indicator of future performance. Any taxation information is a general statement based on current laws and their interpretation. The article is current as of the date of the article unless stated otherwise. The article does not contain, and should not to be taken to contain, any financial product advice and it does not take into account any person’s financial situation, needs, objectives or taxation situation. Because of this, you should, before acting on the information, consider its appropriateness to your clients, having regard to their financial situation, needs and objectives, and your clients should seek independent professional taxation advice on any taxation matters. It is not the intention of Westpac or any member of the Westpac group that the information be used as the primary source of readers’ information but as an adjunct to their own resources and training and should therefore not be relied on for the purposes of making any financial recommendations or an investment decision. To the maximum extent permitted by law: (a) no guarantee, representation or warranty is given that any information or advice in this website is complete, accurate or up to date or fit for any purpose; and (b) no member of the Westpac group is in any way liable to you (including for negligence) in respect of any reliance upon such information.

This page may also contain links to websites operated by third parties (‘Third Parties’) who are not related to the Westpac Group (‘Third Party Web Sites’). These links are provided for convenience only and do not represent any endorsement or approval by the Westpac Group of those Third Parties or the information, products or services displayed or offered on the Third Party Web Sites.