The Maximum Permissible Interest Rate (or MPIR) is a government-set interest rate that is used by residential aged care facilities to calculate a daily accommodation payment based on room price.
How does the MPIR affect the cost of aged care?
An increase in the MPIR can increase the cost of residential aged care for many older Australians. Let’s look at the MPIR and how it is used to calculate aged care costs.
What is the Maximum Permissible Interest Rate (MPIR)?
To pay for a room in an aged care home, residents can choose to pay:
• a Refundable Accommodation Deposit (RAD),
• an ongoing Daily Accommodation Payment (DAP), or
• a combination of the two.
The MPIR is a rate used by residential aged care facilities to calculate a DAP that is equivalent to the payment of a RAD for any given room.
The MPIR is set by the government and changes every quarter. As of 1 April 2024, the MPIR is 8.34%. This is the maximum rate a facility can use to set a daily accommodation payment for residents.
Here is more information about how the government arrives at the MPIR: https://www.health.gov.au/resources/publications/base-interest-rate-bir-and-maximum-permissible-interest-rate-mpir-for-residential-aged-care
What is a Refundable Accommodation Payment (RAD)?
The RAD is the amount you need to pay for a room in an aged care facility. RADs are set by the facility and can be negotiated when you are entering aged care. The average RAD in Australia is about $470,000 but prices can vary greatly depending on location and facility.
When entering residential aged care, the RAD can be paid:
Up-front in full – if you choose to pay the whole RAD up-front, you do not need to pay the DAP.
In part – if you choose to pay a portion of the RAD for your room, you will pay a DAP that is calculated based on the portion of the RAD you have not paid up-front.
Not at all – if you choose not to pay a RAD, you will pay a DAP that is calculated based on the total price you’ve agreed on for your room.
You can choose to ‘draw down’ on the RAD you have paid to cover some of your other aged care costs – including your Daily Accommodation Payments, if applicable.
As the name suggests, the RAD is refundable when you exit the aged care facility. Your RAD (or the remaining balance of your RAD, if you’ve been drawing down on it) must be refunded to you within 14 days after you permanently leave the facility.
If a resident passes away, the RAD must be returned to their beneficiaries within 14 days of a grant of probate or letters of administration being granted.
It is recommended that you seek professional financial advice to determine which RAD option best meets your financial needs.
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What is a Daily Accommodation Payment (DAP)?
The Daily Accommodation Payment covers the cost of your room that you have not paid up-front as a RAD. The DAP is paid periodically (usually fortnightly or monthly) and is not refundable.
The DAP amount is calculated by applying the MPIR % to the portion of the room price not paid by RAD and dividing that amount by 365 days.
Here are two examples:
DAP with no RAD paid
Roger is moving into residential aged care. He agrees to a room price of $500,000 but is not going to pay any Refundable Accommodation Deposit (RAD).
His Daily Accommodation Payment (DAP) is based on the current MPIR of 8.34%:
DAP = (room price × MPIR) / 365
= ($500,000 × 8.34%) / 365
= $41,700/ 365
= $114.25
DAP with a partial RAD paid
Dennis is also moving into residential aged care. He agrees to a room price of $500,000 but is going to pay a $200,000 Refundable Accommodation Deposit (RAD) on entry to the facility and he will pay the rest of his room costs via a Daily Accommodation Payment (DAP)
DAP = ((agreed room price − RAD paid) × MPIR) / 365
= (($500,000 − $200,000) × 8.34%) / 365
= ($300,000 × 8.34%) / 365
= $25,020 / 365
= $68.55
As the MPIR tends to fluctuate, the percentage used to calculate your DAP is set according to the MPIR that is current as of the date you agree to your payments.
Why should you care if the MPIR increases?
If you are already living in an aged care residence, an increase in MPIR will not affect you, as your DAP will have been locked into the MPIR that was current when you moved in.
If you are considering a move into residential aged care – or moving from one aged care facility to another – an increase in the MPIR will affect the Daily Accommodation Payment (DAP) you will potentially pay for your care. The higher the MPIR, the higher DAP you will pay.
How Aged Care Decisions can help you
If you are considering a move into residential aged care, connect with Aged Care Decisions to receive a FREE residential aged care Options Report that will take the stress out of comparing and finding vacancies – at zero cost to you.
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For more information about aged care fees and charges see the following articles:
https://agedcaredecisions.com.au/faq-aged-care-fees/
https://agedcaredecisions.com.au/how-much-does-a-nursing-home-cost-in-australia/
