As financial planners who specialise in aged care advice, one of the most common questions we get asked is: do I need to sell my home to pay the aged care bond and nursing home costs?
The quick answer is ‘maybe’, but increasingly ‘no’. What do I mean by this?
First, let’s start with the typical problem. You or a family member have been confronted with the reality that mum, dad or a relative can no longer look after themselves at home and needs to enter residential aged care.
Very often there is an lump sum payment that is required for admission to an aged care facility called an accommodation bond or post 1 July 2014 a Refundable Accommodation Deposit (RAD). This bond can range from $200,000 right up to $1 million or more depending on:
a) The assets of the person moving into care
b) The demand for rooms in the area in which the aged care facility is located
c) What you negotiate to pay
d) The quality of the extra services offered by the aged care facility
Given that Australian middle income families have about 58 per cent of all household worth tied up in the value of their home, the forced sale of the house to pay an accommodation bond and nursing home costs is often required.
However there is good news – other options are available.
In many cases, it is now possible to raise some or all of the money required to pay an aged care bond via a reverse mortgage. These are loans designed especially for retirees and the elderly. Reverse mortgages allow the borrower to release equity in their home without the need for ongoing payments. The interest is ‘capitalised’ onto the loan balance and the loan is repaid when the property is sold or when the accommodation bond is refunded.
After quite some years with limited funding options for aged care finance, some reverse mortgage providers will now lend up to 45 per cent or $1 million. Criteria is based on an applicants age and the value of the house, so the older you are and the higher the value of the home, the more you can borrow. This option is particularly appealing for those who wish to retain the family home.
Another approach that we use as financial advisers, is to structure some or all of the bond payment by way of a periodic payment or Daily Accommodation Payment (DAP). This is where the resident and the nursing home agree to pay the interest costs of the outstanding bond in regular monthly payments rather than as a lump sum upfront. This option requires the resident (or family) to have access to capital or surplus cash flow to pay the bond interest each month. If the home is rented this is usually a viable option.
From 1 July 2014 the lump sum accommodation bond and part of the former home (up to $144,000) may count as an asset to calculate the means tested aged care fee. Keeping the former home is one strategy to minimise aged care fees as the majority of the value of the home (above $144,000) is not means tested.
So you can see, you may not need to sell the family home to fund the aged care bond and fees after all!
This is a very complex area financially so please call our office on 1300 659 677 for help.