Can you access your home equity to pay for aged care?

Survey after survey, the same results are delivered: most Australians prefer to stay in their own home as they grow older. And why not? Australians are attached to their homes. Families have been raised there, milestones celebrated, and memories created.

Last year’s YourLifeChoices Older Australians Wellbeing survey found that the strong connection to the security of homes is important to retirees. Being able to remain in the family home and remain in an established community have been found to enhance feelings of wellbeing.

The number of COVID-19 deaths in private aged care facilities, added to the horror stories from the Royal Commission into Aged Care Quality and Safety that graced our televisions night after night, has fuelled demand for in-home care services and made a lot of people think twice about residential aged care.

However, for some people, residential aged care is desirable; for others, it’s a necessity. And, despite the stories emanating from the Royal Commission, there are many residential care facilities offering a caring environment and a high standard of living.

The decision to move into residential aged care can be challenging for both the older person and their family. There are the emotional ties to the home and community. For a couple, it may mean separation, depending on the care needs of each. It’s the selection of a few special things to have in their new home – a favourite chair, mementos, precious photos. It’s what to do with everything else! Years of furnishings and all those other things that make a house a home.

Most people don’t like change and the move to aged care is a big one for everyone involved.

One of the biggest challenges is financial. Fee structures can be complex and paying the Refundable Accommodation Deposit (RAD) upfront is often expensive.

For many, it may seem the only option available to fund aged care is to sell the family home. This may not be the best decision financially, emotionally or for your beneficiaries. A sale might not be possible if one person is going to care and their spouse is remaining at home.

Right now, your home is a non-assessable asset for your pension and a capped asset for assessing aged care fees. That could change if you sell your home.

A Household Loan draws on your home equity – what we like to call your Household Capital – to provide choice and flexibility when it comes to your care needs. You can use your home equity to pay for a RAD (or the daily payment) and broaden your care choices. Whether it’s an upgraded room or a better quality facility, you can afford the care you or your loved one deserves.

Case study – Daily Accommodation Payments
Kay is 94 years old and is living in an aged care home in the leafy north-eastern suburbs of Melbourne. She had appointed her son, Keith, as power of attorney; that is, the person able to act on her behalf. Kay previously lived in the family home with Keith, and he’d been able to look after her before she needed full time residential care. Kay wants to retain her home for the near term. 

Kay had two choices when it came to paying for her aged care needs: a lump sum RAD or the Daily Accommodation Payments (DAP). A RAD payment is fully refundable, and a DAP reflects the interest charge that the aged care facility would earn on the RAD.

Keith worked with Household Capital, on Kay’s behalf, to arrange a Household Loan to pay the DAP. Using a small fraction of her home equity, Kay now receives a monthly payment of $2700 which covers her care expenses. By accessing her home equity this way, Kay is able to pay for the care she needs and retain her home.

Case study: Refundable Accommodation Deposit
Angela is 80 years old and recently moved into aged care. Her daughters Sophia and Cath, together with her financial adviser, established a plan to fund her care needs using with her home equity.

Sophia and Cath are joint ‘powers of attorney’. They both live north of Sydney and finding a care facility close by so the family could visit daily was important to them. 

The financial plan determined that the best way to pay for Angela’s care was to pay a Residential Accommodation Deposit (RAD). The daughters also needed to provision a small amount to repair the house so it could be rented. The rent was a further income source that could be used to pay for other care fees.

Angela used 34 per cent of her home equity and put in place a Household Loan for $280,000; $250,000 was used to pay the RAD and $30,000 was used to renovate the home and attract quality tenants.

A Household Capital Household Loan can help you fund your aged care needs, or the needs of someone you love. Check out the Household Capital calculator and see how you could use your home equity to broaden your choice and give you peace of mind.

What are you doing with your Household Capital?

Applications for credit are subject to eligibility and lending criteria. Fees and charges are payable and terms and conditions apply (available upon request). Household Capital Pty Limited is a credit representative (512757) of Mortgage Direct Pty Limited ACN 075 721 434, Australian Credit Licence 391876.

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