Clinton: We talk about finance each week on the program because again it’s an area that can be complicated as you grow older and as you don’t necessarily have a regular income to rely on. We’re sponsored each week by La Trobe Financial and we’ll catch up with Martin Barry in a moment. But I think this is a really important topic that we’re going to discuss today. It’s about the way you can potentially use your property to generate income down the track. But whether you want to renovate it first.
Jill: I know, there are so many questions we get on the forum and just generally about you know people are actually quite shocked I think at how much often they have to pay when they’re moving into aged care. And the thing that people tend to immediately do is say I have to sell the family home. And sometimes that’s actually not the best option which I think is what Martin is going to talk to us about today.
Clinton: You may be able to rent that family home out but that perhaps you haven’t done much to the home in decades and decades.
Jill: Exactly. And remember a lot of these decisions are made on the hop when people are under great emotional stress. And often time poor. You know a loved one has to leave a hospital and they have to find a bed and they have to come up with a large sum of money. It can be anything from sort of $350,000 up to say $700,000. That’s a lot of money to find quickly.
Clinton: Martin Barry from La Trobe Financial our sponsors joins us. G’day Martin. This is an area you can help in isn’t it.
Martin: Absolutely. So La Trobe Financial develops an aged care loan which gives families flexibility and options in how to pay for their room in aged care. But an important feature of this aged care loan is that we will lend up to fifty thousand dollars for renovations on your property.
Annie: That’s a fabulous option actually. And then if you get that loan, is it a standalone loan or do you have to take it out with another loan for say your RAD or DAP?
Martin: So it’s one package one loan. And so the loan covers payment of the RAD which secures your room in the aged care facility. But then we have this option to borrow up to fifty thousand dollars for renovations maybe prior to you renting the property out.
Jill: So if you rent the house out will that income that you get from the rent be assessable and therefore affect your pension that you may be receiving.
Martin: So the rental income is assessable for the purposes of the pension and the means tested care fee test. So it does affect those outcomes but the interest payable on the loan is a deduction.
Jill: So does the loan then getting back to the initial loan which is paying your aged care fees. Does that pay just for the RAD or can you borrow it just for the DAP or is it for a combination of both.
Martin: Good question. So you can use the La Trobe Financial aged care loan to pay for your RAD but you don’t have to pay the full RAD. You could pay a partial RAD and then pay a daily fee. And we also have the option where you can deduct that daily fee from the RAD amount. So we’ve built in lots of flexibility, lots of options for families.
Annie: So if you’re going into an aged care home and you’re a bit unsure of your finances and what you can afford you can actually take out a loan and you can manipulate the loan per say to suit your personal financial circumstances.
Martin: Absolutely. We designed the La Trobe Financial aged care loan to have maximum flexibility and we’re really happy to work with families on different scenarios and give them feedback and plan for aged care entry.
Jill: Is there a limit on how much you can borrow on the loan?
Martin: So the maximum loan size is 50 percent of the property value. Or $750,000.
Jill: OK. So that would definitely cover the majority of RAD’s that are out there in the marketplace I would think. I know there are some that are a lot higher.
Martin: Unfortunately there are some very large RADs. We’ve seen RADs up to two million dollars. But on average about $400,000 across Australia.
Clinton: That’s frightening.
Jill: So who can who can apply for a loan Martin?
Martin: So family members can contact La Trobe Financial and we’re happy to give them the relevant information and application form or we are happy to deal with residents who might be entering aged care as well. So typically we do find it’s the power of attorney that is making the inquiry on all of our systems and our staff are up to speed and ready to deal with powers of attorney.
Jill: So if you then decide to use the money to renovate your house that is then considered as additional to the original loan. Is that right?
Martin: That’s right. So the loan covers the RAD plus any amounts for renovation. So let’s say you want to put in a new kitchen, $20,000, that will be on top of the RAD which might be say $400,000.
Jill: Right. And what about interest payments on the loan. They’re obviously capped at a certain amount and that’s obviously a level which is you know very reasonable within you know normal interest rates at the moment?
Martin: So the current interest rate is 5.6 percent. And we give families the option to pay that interest monthly. So if you were renting out the property you could pay interest monthly or if you prefer we can allow the interest to accrue and be added to the loan balance each month.
Jill: And where can we go for more information on this?
Martin: On our website latrobefinancial.com.au.
Clinton: Very helpful Martin thanks for joining us.