Aged Care Finance: How to Fund Your Entry Fees

Funding aged care in 2026 requires understanding the 'user pays' model, where residents must cover entry fees. The two main options are a Refundable Accommodation Deposit (RAD), a lump sum that averages $350,000, or Daily Accommodation Payments (DAP). Many seniors now use equity release to pay these fees without selling their homes.

What Are the Main Ways to Fund Aged Care?

Since the regulatory reforms introduced the choice between upfront and daily costs, the financial landscape for seniors has changed significantly. The Refundable Accommodation Deposit is a large sum paid to the facility upon admission. This amount is fully refunded to the resident or their estate upon departure. Conversely, Daily Accommodation Payments spread the cost over time, resulting in a smaller initial outlay but a higher total cost over the duration of care.

For many families, paying a RAD of $300,000 to $400,000 is a significant hurdle. This is where aged care finance strategies come in. Instead of liquidating savings or selling the family home, individuals can tap into home equity. This allows them to retain their property while accessing the capital needed for the entry fee.

Is Equity Release a Safe Option for Seniors?

Equity release mechanisms, such as reverse mortgages, are specifically designed for older homeowners. They allow you to borrow against the value of your home without making regular monthly repayments. The debt is typically repaid only when you move out or pass away. This aligns perfectly with the structure of aged care, where the RAD is refunded upon exit. As you move from your home to a care facility, the loan is settled, and the refund can often be used to clear the balance, leaving your remaining equity for your estate.

How Does the User Pays Model Affect Homeownership?

The emphasis on a 'user pays' system means that the government no longer subsidises the accommodation costs as it did in previous decades. This shift places the financial burden directly on the individual and their family. The Means-Tested Daily Fee adds another layer of complexity, as it can significantly increase the total cost of care if you own substantial assets like a home.

Retaining the home can sometimes make the daily fees higher because the asset is considered available to contribute to care costs. However, using equity release to pay the RAD upfront may reduce the daily fee component. This makes it crucial to model the financial outcomes before making a decision. Financial advisors specializing in senior services often use calculators to compare the total lifetime cost of paying a RAD versus DAP, factoring in interest rates and home value appreciation.

What Are the Alternatives to Selling Your Home?

• Reverse Mortgages: Access cash flow from your home's equity without moving out.
• Downsizing: Sell a larger property to buy a smaller, low-maintenance one and use the difference for care.
• Debt Consolidation: Combine existing debts with a single loan to free up cash for care fees.
• Living Expense Loans: Short-term loans to bridge gaps in income before care begins.

For those who wish to avoid a full sale, releasing equity for living expenses or travel can also provide a temporary buffer. However, the primary use of such funds is usually to secure the entry to a care facility. The average entry fee in high-demand urban areas can exceed $400,000, making these financial tools essential for maintaining independence in the decision-making process.

Which Costs Should You Budget for Beyond Entry Fees?

Entry fees are just the beginning. You must also budget for the Means-Tested Daily Fee, which is calculated based on your assets and income. If you retain your home, the value of that asset is included in this calculation. There are also care fees, which are a fixed government-determined rate that does not depend on your personal finances.

In 2026, with inflation affecting healthcare costs, it is wise to have a contingency fund. Many seniors use a portion of their released equity to cover unexpected medical bills or personal care attendants. The goal is to balance the need for care services with the preservation of wealth for your dependents. A well-structured financial plan can ensure that your home equity is used efficiently, providing both security and flexibility during the transition to aged care.

When Should You Consult a Financial Advisor?

You should consult a specialist before selecting a care facility or choosing between payment models. The difference between a RAD and DAP can amount to tens of thousands of dollars over a multi-year stay. An advisor can assess your specific circumstances, including home value, existing debts, and family support levels. They will help you determine if retaining your home is financially viable or if a downsizing strategy would provide better long-term security for your estate.

FAQ

What is the average Refundable Accommodation Deposit in 2026?

The average RAD ranges from $300,000 to $400,000, but it can be much higher in premium facilities or high-demand regions. This amount is fully refundable to you or your estate when you leave the care home.

Does using a reverse mortgage affect my Means-Tested Daily Fee?

Yes. While you do not sell the house, the equity you release may still be counted as an asset or your home's value remains in the calculation for the Means-Tested Daily Fee. However, paying the RAD upfront often reduces the need for high daily payments, potentially balancing the total cost over time.

Can I use equity release to pay for both my partner and my care costs?

Usually, one partner pays the entry fee to secure two places. If both require care, the equity released must cover both RADs or DAPs. This requires careful planning to ensure the total debt does not exceed the property's value over the expected duration of care.

What happens to my home equity if I die in aged care?

If you used a reverse mortgage, the debt is settled from the property's sale proceeds upon your death. The remaining equity is passed to your estate or beneficiaries according to your will. If you paid the RAD out of savings, your home remains your asset, and its full value is part of your estate.