Paying for Accommodation in Residential Aged Care
Understanding Your Options and Planning Ahead
Moving into residential aged care is a significant life transition. It also raises important financial questions for individuals and families.
One of the largest costs associated with residential aged care is accommodation — the cost of the room or suite in the facility. Understanding how these payments work can help families make more confident decisions at what is often a stressful time.
Australia’s aged care system offers several ways to pay for accommodation. Each option has advantages depending on a person’s financial circumstances and long-term plans.
Understanding Accommodation Payments
When someone enters a residential aged care facility, the provider sets a room price for each type of accommodation. Residents must agree to the price before entering care.
The cost of the room is separate from the daily care fees that cover services such as meals, cleaning and clinical care.
Depending on their financial situation, residents may either:
- Pay the full accommodation cost themselves, or
- Receive some government assistance if they have limited assets and income.
For those who need to contribute to accommodation costs, there are three main payment options.
The payment for your room is separate from your daily care fees and can be covered in one of three ways:
Option 1: Refundable Accommodation Deposit (RAD)
The most common way to pay for aged care accommodation is through a Refundable Accommodation Deposit, usually referred to as a RAD.
A RAD is a lump sum payment made when the resident moves into the facility. The amount is typically equal to the agreed room price.
Key features of a RAD include:
- It is refundable when the resident leaves the facility or passes away.
- It acts like an interest-free loan to the aged care provider.
- The provider can use the funds to help finance accommodation and facilities.
There is also a government threshold for room prices. If a provider wants to charge above a certain level, approval is required.
Retention rules
Recent aged care reforms introduced a retention component for RAD payments. Providers may retain:
- 2% of the RAD each year,
- for up to five years,
- resulting in a maximum retention of 10% of the deposit.
The remaining balance is refunded when the resident leaves the facility or their estate is finalised.
For many families, the RAD is funded by selling the family home. Others may choose to keep their home and use other assets instead.
Option 2: Daily Accommodation Payment (DAP)
Instead of paying a lump sum, residents can choose to pay a Daily Accommodation Payment, or DAP.
This option works like paying rent for the room.
The daily payment is calculated using the room price and a government-set interest rate known as the Maximum Permissible Interest Rate (MPIR).
Unlike the RAD, these payments are not refundable. They are simply ongoing accommodation costs.
Some residents prefer this option if they want to retain their capital rather than paying a large upfront deposit.
Option 3: Combination of RAD and DAP
Many residents choose a combination approach (a hybrid solution).
This means paying:
- Part of the room price as a RAD, and
- The remainder as a reduced daily payment (DAP).
For example:
- Total room price: $500,000
- Lump sum RAD paid: $300,000
- Remaining balance: $200,000
The daily payment would then apply only to the remaining $200,000.
This strategy allows families to reduce the daily cost while still preserving some capital.
Government Support for Lower-Means Residents
Not everyone must pay the full accommodation cost.
Residents with limited assets and income may qualify for government support through the aged care means test.
Example: How Accommodation Payments May Work
Margaret, aged 84, needs permanent residential aged care. She selects a room with a listed price of $500,000.
Her family reviews the available options.
Option 1 – Full RAD
Margaret pays the full $500,000 RAD, funded from the sale of her home.
Under current rules, the provider may retain up to 10% over five years. If Margaret remains in care for five years, approximately $450,000 would be returned to her estate.
Option 2 – Daily Payment
Margaret decides not to sell her home. Instead, she pays a DAP of about $110 per day, based on the room price and interest rate.
This equals around $40,000 per year in accommodation costs.
Option 3 – Combination
Margaret could also pay $300,000 as a RAD and pay a reduced daily payment on the remaining $200,000 – at a cost of about $16,000 per year.
This option lowers the daily cost while preserving part of her capital.
Each approach has different financial implications, particularly for –
If you enter a residential Aged Care facility under a DAP, you have options at any time to convert to either the RAD or the hybrid RAD/ DAP combination option.
Other Aged Care Costs to Consider
Payments for the accommodation facility are only one component of residential aged care costs.
Residents may also pay:
- Basic Daily Fee – covers everyday living expenses such as meals and utilities.
- Means-tested care fee – based on income and assets.
- Additional service fees for higher levels of accommodation or lifestyle services.
These fees vary depending on individual circumstances and the facility chosen.
Planning Ahead Matters
Deciding how to pay for your aged care room is a significant financial decision. It’s important to consider your savings, assets, and long-term financial needs before making a choice.
If you or a loved one is moving into aged care, start planning as early as possible. The right advice can help you feel confident in your decision and ensure the best financial outcome for your future.
Families may need to consider:
- Whether to sell or retain the family home
- How aged care costs affect Age Pension entitlements
- Managing investment income and liquidity
- Balancing estate planning goals with care funding needs
The right strategy can differ significantly from one family to another. Seeking advice early can help ensure that aged care costs are managed efficiently while protecting long-term financial security.
Our Aged Care advice specialist service
Speaking to a financial adviser accredited in aged care advice can help you understand your options and choose the best approach for your situation. The Continuum Financial Planners team has accredited specialists available to guide you and/ or your loved ones through this complex process. To make an appointment –
- Phone our office on 07-3421 3456; or
- At your convenience, use the linked Book A Meeting facility.
(This article was first posted by us in March 2026.)