July 2020

Maximum Permissible Interest Rate (MPIR) drops to an all-time low of 4.10%

The Maximum Permissible Interest Rate (MPIR) is dropping to an all-time low of 4.10% for the period of 1 July – 30 September 2020. This is in line with changes to the age pension and indexation rates, and is effective in every aged care home in Australia from today. 

So, what does this mean for me?

The people who may benefit from the lowered MPIR are those who are thinking of becoming a permanent resident in a Greengate aged care home. This lower rate of 4.10% has resulted in a significant drop in the Daily Accommodation Payment (DAP) prices for all new residents entering into permanent residential aged care from today.

What is a DAP?

Provided you are not a concessional resident, once you become a permanent resident in an aged care home you will be required to pay an accommodation payment - this can be seen as the price for the room. There are a few different ways you can pay for this, the first one is to pay a DAP (Daily Accommodation Payment). 

A DAP is a rental style daily payment and is calculated on the price of the room, using the MPIR set by the Government (currently 4.10% as at 1 July 2020) and paid monthly in advance. This payment is non-refundable.
Here is an example of how to work out the DAP on a $700,000 room. 

($700,000 x 4.10%) 
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365                                     = $78.63 per day DAP

Because of the lowered interest rate, the DAP option is now significantly lower for people who are entering into permanent care. This may influence new residents to choose a DAP style of payment instead of a RAD – the choice is always yours. 

What is a RAD?

A Refundable Accommodation Deposit (RAD) is another way you can pay your accommodation payment once you become a permanent resident. A RAD is an upfront lump sum that you pay for the price of the room - this is like a bond. Anything you pay as a RAD is refunded once you depart the aged care home. The MPIR has no impact on the RAD price of the room. 

However, the third option for paying your accommodation payment is to split the RAD and the DAP, and this third option is also effected by the MPIR drop. For instance, for the $700,000 room we mentioned above, let’s say the person only wants to put $300,000 towards their RAD. In this scenario, they would then only have the pay the DAP (interest) off of the remaining $400,000. Their fees would be as follows:

$300,000 upfront RAD payment 

+

($400,000 x 4.10%) 
------------------
365                                     = $44.93 per day DAP

What if I’m already a permanent resident?

Changes to the MPIR don’t affect existing permanent aged care residents, this is because the rate is set on the date of entry to the aged care home and doesn’t change while the resident lives there. If you or a loved one are already a permanent resident, please refer to your permanent agreement for your set MPIR rate. 

This article is just a guide, and Greengate always recommends that you seek independent financial advice when deciding how to pay permanent aged care fees. If you’d like to learn more about aged care in any of our Greengate villages across Sydney and Brisbane, or would like to chat with us about the MPIR drop, please call us today on 02 9097 9175 or email amy.underwood@greengate.com.au