What are my financial options to move into an aged care home? 4.9

Reverse Mortgage

This is also known as Equity Release.

If you own your house outright you can borrow money against the value of your house.  There are no repayments (although you can make a repayment if you wish.)  You have to repay the loan when you sell the house or when the last borrower passes away.

The catch is that interest rates on reverse mortgages tend to be higher.  This gets added to the loan balance each month and can add appreciably to the debt.

When a home loses value or if the borrower stays in the home for many years the loan amount can eventually come to exceed the value of the home.  Usually, however, the borrower (or their estate) does not have to repay any additional loan balance.  

You can receive a reverse mortgage as a lump sum or it can be available with a redraw facility so the owner can draw down money as they need it.  You can also use a combination of options.  

The biggest risk of a reverse mortgage is if there is a big drop in the property market but the reverse mortgage amount remains the same.  So if you apply for a reverse mortgage, always be sure to get a 'no negative equity' guarantee - don't accept one without it.

Lastly be mindful that you wouldn't get a reverse mortgage for the full value of your property.  Typically it is between 30 and 50 percent of the property's value.

Know that particularly in times of declining home values or if the borrower continues to live in the home for many years the rising loan balance can eventually grow to exceed the value of the home


Selling the family home 

Personal circumstance and what has been negotiated with the aged care home (nursing home) will decide whether or not you decide to sell the family home prior to entering an aged care home.

If you do not sell your home to move into an aged care home it will be exempt from the age pension assets test for two years from the date they move into the aged care home.  For more information call the Department of Human Services on 132 300.

The refundable lump sum paid to an Aged Care provider is exempt from the Aged Care Combined Assets and Income Assessment.


Renting out your home

If you choose to rent your home to cover the periodic payments in an aged care home, however, the rental income is counted for the Combined Income and Assets Test used for means-tested daily care fees at the aged care home.