When you, a relative or other loved one is provided with a place in a Nursing home, you or they will be required to pay either a Refundable Accommodation Deposit (RAD) or an equivalent Daily Accommodation Payment (DAP).
A DAP is linked to a RAD via the Maximum Permissible Interest Rate (MPIR)* which is a government set interest rate.
The MPIR is revised every quarter which means that calculations of DAP must be updated to the most current rate if you are considering such a payment. The last 5 rates are shown below:
1/01/2018 to 31/03/2018 – 5.72%
1/10/2017 to 31/12/2017 – 5.70%
1/07/2017 to 30/09/2017 – 5.73%
1/04/2017 to 30/06/2017 – 5.78%
Once the MPIR for a person has been determined, they cannot be charged a higher rate.
For example, let’s assume that a nursing home would charge a RAD of $500,000.
Applying the MPIR (for the period 1 Jan 2018 to 31 March 2018) DAP would be calculated as follows:
Annual interest charged – $500,000 x 5.72 ÷ 100 = $28,600
Daily interest charged – $28,600 ÷ 365 = $78.36
There are no riskless investments that pay a better rate than 5.72% (2.3% is the going rate for a bank term deposit at the time of writing) so paying the DAP is a very expensive way to acquire a nursing home place).
*(Note this area is full of acronyms, some of which, like these, you should try and get your head around).