Australia
Few financial decisions in retirement arrive with less warning and higher dollar consequences than entering residential aged care. The Refundable Accommodation Deposit (RAD) can exceed $550,000 in Melbourne or Sydney aged care facilities — payable on entry, often with limited time to arrange funds.
For retirees who own their home but hold limited liquid assets, a reverse mortgage is one of the few mechanisms available to fund the RAD quickly, without forcing a rushed and emotionally difficult property sale at the worst possible time.
What the Refundable Accommodation Deposit Is
When entering a residential aged care facility, most residents are required to pay a Refundable Accommodation Deposit. The RAD is set by the facility and reflects the standard of accommodation offered.
RAD amounts vary significantly — from under $200,000 in some regional facilities to $800,000 or more in premium metropolitan locations.
The RAD is fully refundable when you leave the facility, or when your estate is settled. It is not a payment for care — it is a security deposit. The aged care facility holds the RAD interest-free during your residency and earns the investment return on those funds. You pay a daily accommodation payment on any amount not paid as a RAD lump sum.
Eligibility criteria and thresholds for aged care are subject to change — confirm current rules with My Aged Care (myagedcare.gov.au) before making decisions.
How a Reverse Mortgage Can Fund the RAD
A reverse mortgage provides a lump sum against the equity in your home, without requiring you to sell the property. This lump sum can be used to fund the RAD.
- Property value: $1,150,000
- Borrower age: 77
- Approximate maximum LVR: 33%
- Maximum gross available: approximately $380,000
- Existing mortgage: nil
- RAD required: $320,000
- Reverse mortgage drawn: $325,000 (covering RAD plus entry costs)
The property remains in your ownership — and your estate's — until it is eventually sold. In the interim, it can be rented, generating income that may offset the reverse mortgage interest accruing on the drawn balance.
LVR limits vary by lender and are subject to individual assessment.
Talk to Key Choice Lending about your options.
Key Choice Lending has access to 72+ lenders and has supported Australian borrowers through more than $1 billion in transactions. Founder Matthew Clark is a two-time Amazon bestselling author and Better Business Award winner. Book a Strategy Session — no obligation, focused on your situation.
What Happens to the Reverse Mortgage After Moving Into Care
This is the element most families do not think through clearly — and it is critical.
Most reverse mortgage contracts define the primary residence as the security. When a borrower permanently moves into aged care, the property is no longer their primary residence. This typically triggers the loan's repayment clause.
The practical result: the estate generally has approximately 12 months to repay the reverse mortgage. This usually means the property is sold.
Some lenders provide longer repayment windows, or different arrangements where a spouse or dependent family member remains in the property. These conditions are lender-specific and must be confirmed in the loan contract before signing — not assumed.
The Rental Option During Aged Care
If the property is no longer your primary residence, it can be rented out. Rental income can:
- Offset the reverse mortgage interest that continues accruing while you remain in care
- Contribute toward aged care ongoing daily fees
- Reduce the rate at which equity is eroded during the care period
The Centrelink treatment of the property during aged care is complex. The former home is generally exempt from the assets test for two years after entering care. After that, it may become assessable, affecting means-tested aged care fees.
Tax treatment varies by individual circumstance — speak with your accountant before making any decisions based on tax considerations.
The Estate Calculation at Settlement
When the property is eventually sold, the sequence of payments from the proceeds is:
1. Reverse mortgage repaid in full (principal plus all accrued interest)
2. RAD refunded from the aged care facility to the estate
3. Any remaining proceeds distributed to beneficiaries per the will
The estate receives the net amount after both obligations are settled. Understanding this sequence in advance prevents surprises at estate settlement.
The Three Professional Conversations to Have Before Choosing This Strategy
This is not a decision to make based on general information alone. Three separate professional conversations are essential:
1. An aged care financial adviser — to model the RAD versus Daily Accommodation Payment comparison, Centrelink means testing implications, and ongoing care fee structure under each scenario.
2. Your accountant — to understand the tax treatment of rental income from the property while in care, CGT implications on eventual sale, and the estate tax position.
3. A solicitor — to review the reverse mortgage contract, specifically the repayment triggers relating to change of primary residency, and to ensure estate planning documents (will, power of attorney) are current and correctly structured.
A reverse mortgage for aged care funding is a legitimate and often well-suited strategy. The sequencing of drawdown, rental, and eventual sale involves multiple professional disciplines working in coordination — and the time to arrange those conversations is before the aged care need arises, not on the day of entry.
Book a Strategy Session. Make the Move.
The information provided in this blog is for educational purposes only and should not be considered financial advice. Always consult with a professional financial advisor or lender for specific lending decisions.
