Guide

Paying for the room

The room is the largest number in an aged care quote and the one families agonise over most, often because it arrives at the same time as a decision about the family home. It is also the only cost you get a real choice about. There are three ways to pay it and they are designed to cost the same, so this is a decision about what suits your family rather than a test you can fail.

The two ways to pay

A refundable accommodation deposit

Known as a RAD. You pay the room price as a lump sum. The balance is refunded when the resident leaves — including when they die, in which case it goes to the estate. The refund is guaranteed by the Australian Government, so it does not depend on the provider staying solvent.

A daily accommodation payment

Known as a DAP. Instead of the lump sum you pay a daily amount, worked out from the room price at an interest rate the government sets each quarter — the maximum permissible interest rate, or MPIR. The formula is fixed:

The rate is locked in on the day you agree the room price, so it doesn't move underneath you afterwards. The daily amount itself is indexed on 20 March and 20 September.

A combination

Pay part as a lump sum and the rest daily. The daily part is calculated on what is left: a $500,000 room with $200,000 paid up front leaves $300,000 to cover daily.

The 2% that isn't refunded

For anyone entering care from 1 November 2025, providers deduct a retention amount from a lump sum: 2% of the balance a year, worked out daily, for up to 5 years. It is not refunded.

On a $500,000 deposit that is $10,000 in the first year. The deduction applies to the balance as it reduces, and stops after 5 years.

The provider cannot ask you to top the deposit back up to cover it, or raise your daily payment to make up the difference. This is the single biggest change to the lump-sum option in a decade, and it is the thing most worth putting into the comparison when you weigh a RAD against a DAP.

People who entered before 1 November 2025 are not affected.

When you have to decide

Under the arrangements that applied before 1 November 2025, a resident had 28 days from entry to choose and six months to pay a deposit. If you are helping someone who moved in under those rules, that is the timetable that still applies to them.

What to check before signing

• The room price in the agreement matches the price published on My Aged Care. A home cannot charge above its published price.
• Which room the price is for. Prices are set per room, and the one you are shown on a tour is not always the one on the paperwork.
• What happens if the resident moves rooms later — voluntarily or not.
• Whether a higher everyday living fee has been included. It is optional and has to be agreed separately.
• The interest charged on late payment, which the agreement has to state.

Which option costs less

By design, neither. The daily payment is derived from the lump sum at a set rate, so the two are meant to be equivalent. What separates them is everything around them: what the money would otherwise earn, how a lump sum changes the age pension and the means-tested contributions, whether a family wants to keep a former home, and now the 2% retention.

That is a genuine financial decision and it is worth getting help with. Services Australia's Financial Information Service is free, independent and sells nothing. We publish government data and explain the rules; we are not financial advisers and nothing here is advice about your circumstances.