Aged Care Loan

There are many questions to consider when making the transition into an aged care facility. However the reality is, that these decisions are difficult, stressful and most of the time need to be made quickly. Importantly, how to fund a Refundable Accommodation Deposit (RAD) needs to be arranged to transfer a loved one into an aged care facility. Such deposits may exceed $500,000.

How to fund this payment is a complex problem for many families. With this in mind La Trobe Financial offers a mortgage that can be used specifically to make this payment, reducing the stress for families at a very emoitional time.

Our experienced team has developed a product that is easy to understand and set up, making transition to aged care less complicated.

Product Details:

Product Name Aged Care Loan
Current Rate^ 5.60%^ (steps up 2%p.a. in years 6 & 7)
Comparison Rate* 7.60%
SecurityType Residential and/or investment security collateral and charge over RAD.
Loan Purpose To secure a place in an Aged Care facility by paying RAD
Verification Required Borrower (or Power of Attorney holder) declaration of understanding of security taken and independent financial and legal advice on Aged Care Loan
Personal or Business/Investment Purposes Personal use only for individuals aged > 80 years to pay for ongoing care fees (DAP) rennovations or repay existing debt.
Minimum Loan Amount $100,000
Maximum Loan Amount $750,000 (50% LVR)
Maximum LVR 50% of value of home
Lenders Mortgage Insurance required No
Maximum Loan Term 7 Years
Repayment Type No capital payments required during loan term.
No interest payments required until the loan outstanding reaches 140% of initial amount borrowed.
Maximum Interest Only Term 7 Years
Interest Rate Type Variable
Redraw Available No
Application Fee (excl. Val. & Legal Fees) $2,500. Other fees applicable during setup.
Risk Fee $0
Additional Repayments Yes

* The comparison rate is based on secured credit of $150,000 and a term of 25 years. WARNING Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees and cost savings such as fee waivers are not included in the comparison rate but may influence the cost of the loan. Terms, conditions, fees, charges and La Trobe Financial Lending criteria apply. ^ Depends on loan amount and risk grade of borrower.
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Emotional Benefits
  • Breathing space
  • Retain the family home
  • Able to visit home
  • Option to return home
Financial Benefits
  • Can rent out property
  • Property capped at $159K for MTCF
  • No CGT for 6 years
  • Borrowing may offset RAD cost
Emotional & Financial Benefits
  • No “fire sale”
  • Less family issues in who pays
  • No need for guarantees
  • Able to renovate or repair ahead of rental or sale
Aged Care Loan FAQs
  • Sell the family home to cover the Refundable Accommodation Deposit (RAD)
  • Keep the house, sell down investments
  • Release Equity from the family home to fund the RAD.
To understand the full range of options, we recommend you visit http//www.myagedcare.gov.au & https://agedcare.health.gov.au

Yes, an accommodation payment can be paid in a number of ways:

  • Lump sum – the RAD is the capital value of the room that the resident is occupying.
  • Daily fee – Daily Accommodation Payment (DAP) is calculated by reference to the RAD – applying an interest rate (set by the government, currently 5.76%) to the lump sum amount, then dividing by 365 to make a daily fee.
  • Partial lump sum + partial daily fee RAD + DAP is where the daily fee component (DAP) can be deducted from the lump sum component (RAD).

La Trobe Financial offers a loan that can be used specifically to release the equity in the applicant’s home to pay the RAD, which is payable upon entering an Aged Care Facility.

The RAD to the Aged Care Facility secured by a mortgage over the borrower’s home and a charge over the RAD. When the time comes, the Aged Care Facility refunds the RAD back to La Trobe Financial and we release the mortgage after the borrower or estate has paid any of the accrued interest.

La Trobe Financial’s Aged Care loan is specifically designed to fund the payment of the RAD.

There are a number of product features that make the La Trobe Financial Aged Care loan not a Reverse Mortgage (RM). These include:

  • The borrower is vacating their security property and moving into Aged Care (RM borrower stays at home);
  • Payments are required under the Aged Care loan as the LVR reaches 70% (RM no payments are required);
  • The aged care loan is a 7 year term (RM is whole of life or until property sale a RM can be repaid early).

The La Trobe Financial Aged Care loan gives the applicant the ability and flexibility to rent out the security property to produce income. Whilst this is not exempt from means testing, when combined with a RAD payment can result in a lower means tested fee outcome.

The La Trobe Financial Aged Care loan can be utilised to fund repairs or renovations to the property perhaps ahead of rental or sale, repayment of debts/mortgage and payment of loan set up fees.

The La Trobe Financial Aged Care loan is eligible to individuals aged over 80 considering a move into aged care, or already a resident. However, younger borrowers may be considered on application.

The application may be lodged by the borrower or more commonly under a Power of Attorney*.

*The registered Power of Attorney will need to comply with relevant state requirements which will be verified by our solicitors in the documentation process.

Yes, La Trobe Financial will provide you with an indicative letter of offer and this can be used to “shop” for a bed. You can find independent reviews on various facilities such as: www.agedcarereviews.com.au and www.agedcareonline.com.au

The La Trobe Financial aged care product is not a reverse mortgage therefore resulting in a less complex application process. Our application form is 4 pages versus typically reverse mortgage of 15+ pages and we personally call families and attorneys and walk through their details.

The Interest rate is currently 5.60% variable. This is less thank the MPIR (Maximum Permissible Interest Rate). The rate is applicable for the first 5 years (steps up 2% in years 6 and 7). Interest repayments become due when the total loan balance increases to 140% of the initial settlement amount advanced at settlement.

Interest is charged monthly and calculated using a simple interest methodology based on the outstanding loan balance. The borrower has the option to repay any $ amount of principal or interest at any time subject to applicable fees.

Repayments of interest are only required to be made when the total balance of the loan increases to 140% of the initial settlement amount, usually around 5 years.

The La Trobe Financial Aged Care loan will lend up to 50% of the property value for a maximum of 7 years. A mortgage is taken over the property and the RAD. The gross loan balance will increase over time until the point where interest payments commence around year 5.

The RAD value will remains constant over time.

The net loan balance, being the difference between the gross loan balance and the RAD refund reflects the residual loan amount due.

Therefore, it would be expected that the net borrowings will reflect only the interest accrued. Consequentially the risk of negative equity is reduced given we net off the RAD.

At the expiry of the initial loan term of 7 years, an extension of term may be considered subject to valuation.

Yes, subject to fees and charges. Repayments are due on:

  • Leaving the facility (facility to refund the RAD)
  • Death (Estate/Will has 9 months to repay any residual amount)
  • Sale of property; or
  • Loan term expiry

We strongly recommend customers seek independent financial advice to determine the suitability of this product.

To speak directly to our aged care specialists, call 13 80 10 or your local Senior Manager Client Partnerships team.

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