Key points
- A room in an aged care home can be paid for as a refundable accommodation deposit (RAD), which is a lump sum, a daily accommodation payment (DAP), or a mix of both, and a provider cannot require a particular payment method.
- For people who entered permanent care on or after 1 November 2025, there is no 28 day deadline to choose between a RAD and a DAP. A lump sum can be paid at any time after entry once the means assessment is finalised, and the non-refundable daily payment applies until it is paid.
- For people who entered permanent care before 1 November 2025, the older rules applied: 28 days from entry to choose, and up to six months to pay a lump sum, with the daily payment in the meantime.
- From 1 November 2025, providers must deduct a retention amount from RAD balances of 2% a year for up to five years, which is up to 10% of the deposit. People already in permanent residential care on 31 October 2025 keep their existing accommodation arrangements, so retention and daily payment indexation do not apply to them unless they move to the 1 November 2025 arrangements.
- A DAP is calculated as the room price multiplied by the maximum permissible interest rate (MPIR), divided by 365. The MPIR changes every quarter, and daily accommodation payments are indexed to CPI on 20 March and 20 September each year.
- An aged care home can charge a room price up to a published maximum without approval from the Independent Health and Aged Care Pricing Authority. As at 1 July 2026 that threshold is $789,686.
What you are paying for
The accommodation payment buys the room. It is separate from the basic daily fee and from the means tested care contributions.
Each home publishes a price for its rooms. The published price is the most the home can charge for that room. You can negotiate a lower price, and the price you agree is the basis for both the lump sum and the daily calculation.
How a RAD works
A refundable accommodation deposit is a lump sum paid to the provider. It does not earn interest for the resident. When the resident leaves, the balance is refunded, less any amounts the provider is permitted to deduct.
Since 1 November 2025 those permitted deductions include retention, which is covered below.
How a DAP works
A daily accommodation payment converts the unpaid room price into a daily amount, using a government set rate called the maximum permissible interest rate, or MPIR.
The formula is published and simple:
The calculation
Daily payment = (room price x MPIR) divided by 365.
The MPIR changes every quarter, so we do not publish a rate here. The Department publishes the current one on its base interest rate and maximum permissible interest rate page, linked in the sources below.
You can combine the two
Part lump sum and part daily payment is expressly allowed, and you can split the combination any way you choose.
There is also a less understood option: the daily payment can be drawn down from the lump sum balance rather than paid from income. Whether this suits a particular person is worth checking with an independent financial adviser. It does reduce the refundable balance over time.
A provider cannot require you to use a particular payment method.
When you have to decide
The timing rules depend on when the person first entered permanent care.
Before moving in
A home cannot ask you to choose your payment option before the person moves in.
Entered on or after 1 November 2025
There is no 28 day deadline to choose. A lump sum, or a larger part lump sum, can be paid at any time after entry once the means assessment is finalised. Until it is paid, the non-refundable daily payment applies.
No fixed deadlineEntered before 1 November 2025
The older rules applied: 28 days from entry to choose, and up to six months to pay a lump sum, with the daily payment in the meantime.
28 days, then six monthsWhat changed in November 2025
These changes started on 1 November 2025, and they change the arithmetic.
From 1 November 2025, providers must deduct a retention amount from RAD balances. It is 2% a year, calculated daily, deducted no more than monthly, and it stops five years from the date the deposit was first paid.
Over the full five years that is up to 10% of the deposit. So a refundable deposit is no longer fully refundable. Retention reduces the refundable balance, it does not increase the outstanding daily payment.
Daily accommodation payments are also now indexed to CPI, on 20 March and 20 September each year.
Residents already in care keep their existing arrangements
People already in permanent residential care on 31 October 2025 keep their existing accommodation arrangements, so retention and daily payment indexation do not apply to them unless they move to the 1 November 2025 arrangements. Moving to another home does not end that protection on its own. It ends if they opt in to the 1 November 2025 arrangements before or when they move to another home, or if they return to care after a break of more than 28 days following discharge. Different rules apply to people who first entered care before 1 July 2014, so check with the provider. Opting in while staying in the same home does not change accommodation arrangements.
Room prices above the threshold
A provider can charge up to a published maximum without approval. Above that, it needs approval from the Independent Health and Aged Care Pricing Authority.
The threshold rose from $550,000 to $750,000 on 1 January 2025 and has been indexed to CPI each 1 July since. As at 1 July 2026 it is $789,686.
A room priced above that has been through an approval process. It is not a red flag on its own, but it is worth asking what the higher price buys.
What actually changes the decision
We are not going to tell you which to choose, because the right answer depends on things only you and an adviser can see.
The payment method can affect the Age Pension and other aged care fees: a refundable lump sum is counted as an asset in the aged care means assessment but is exempt from the Age Pension means test, and whether the person gets help with accommodation costs depends on their means assessment.
Services Australia provides a free Financial Information Service, and a financial adviser with genuine aged care experience can model an individual situation. This is a decision worth paying for advice on.
Frequently asked
Is a RAD really refundable?
What happens to the RAD when the resident dies?
Does a RAD earn interest for the resident?
What if I cannot pay a lump sum?
Can I switch from a daily payment to a lump sum later?
What is the MPIR and where do I find the current one?
Does paying a lump sum affect the Age Pension?
Sources
This guide is general information, written from the published sources below. It is not a substitute for advice about your own circumstances.
Department of Health, Disability and Ageing, 2026
Accommodation payments and contributions for residential aged careDepartment of Health, Disability and Ageing, 2026
Published prices and maximum accommodation payment amountsDepartment of Health, Disability and Ageing, 2026
Base interest rate (BIR) and maximum permissible interest rate (MPIR) for residential aged careMy Aged Care, 2026
Understanding aged care home accommodation costsServices Australia, 2026
Financial Information Service
