Why you should think twice before selling your home to pay for aged care

A million-dollar mistake lurks in Australia’s new aged care rules, with families who rush to sell their homes facing shocking hidden costs, writes finance guru Noel Whittaker.

For years, the golden rule of entering aged care was think twice before selling the family home.

But Rachel Lane of Aged Care Gurus says new rules and exit fees can change the financial picture dramatically, and it’s now time to think three times.

Since 1 November, the system has become more nuanced, and families who don’t take time to understand the implications can easily make decisions that cost them far more than they realise.

Many people assume that selling the family home is the only way to fund aged care. After all, the Refundable Accommodation Deposit – or RAD – is usually hundreds of thousands of dollars. It’s easy to see why people panic.

If you don’t pay the RAD in full, the unpaid balance attracts interest at the maximum permissible interest rate (MPIR), which is currently 7.61% a year. On a $750,000 RAD, that’s $57,075 in annual interest – enough to make selling seem like a “no-brainer”.

But now that the rules have shifted again, selling your home can often be the worst move you could make.

Columnist Noel Whittaker. Picture: David Clark

Keeping your home offers substantial financial advantages that no other asset can provide.

One of the biggest misconceptions is that the home is fully assessed for aged-care fees. It’s not. Under current rules, only a capped amount – $210,555 – is counted in the aged-care means test.

If your home is worth $1.2 million, that means roughly $1 million is effectively ignored for aged-care purposes. This single concession can transform what looks like an impossible situation into one that is entirely manageable.

Contrast that with what happens if you sell. Every dollar you put into the RAD becomes assessable, and any money left over adds to both your pension and aged care means tests. So you could lose valuable pension entitlements and pay higher care fees, all for the sake of “simplifying” things. And once the money is assessed, there’s no turning back – you can’t undo the impact of that decision.

The age pension rules also favour keeping your home. If you move into aged care and retain ownership, the property is exempt from the pension assets test for two years. And if you’re part of a couple, that two-year clock doesn’t start until the second person leaves the home. That’s a major benefit, often overlooked, that can provide crucial breathing space at a stressful and emotional time.

It is important families consider all options when a loved one goes into care.

What’s changed since 1 November is the introduction of an exit fee on the RAD. Previously, the deposit was fully refundable when you left aged care. Now, if you stay five years or more, you could forfeit up to 10% of it. On a $750,000 RAD, that’s a $75,000 hit – money that once came straight back to your estate. Suddenly, paying the RAD looks far less attractive, and many advisers are reworking strategies that once seemed straightforward.

Of course, keeping your home isn’t free. There are rates, insurance, maintenance, and possibly rent or care costs to consider. But if the property grows in value, that growth can offset these expenses. In some cases, renting the house can help cover daily care fees while keeping the capital intact.

For example, one family kept Mum’s home worth $1 million, rented it for $700 a week, and used the rent to pay daily care fees. Five years later it was worth $1.4 million, preserving both the asset and flexibility to sell later. By contrast, another family sold Dad’s home to pay a $600,000 RAD, only to realise the negative impact on aged-care costs and lost pension — a surprise that could have been avoided.

With aged care, it’s always been important to think – and get informed – before you act. With the new exit fees and shifting assessment rules, the smart money now says: think three times – and get advice before you act.

Originally published as Why you should think twice before selling your home to pay for aged care