Have higher interest rates made aged care more expensive? The short answer is yes, but perhaps not in the way you’d expect.

Interest rates don’t change the advertised price of an aged care room. What they do change is the cost of how you pay for it. And for families choosing to pay by daily instalments rather than a lump sum, that difference can add up to tens of thousands of dollars a year.

The price of an aged care room

The average cost of a room in residential aged care is now around $570,000. That’s a confronting figure, but here’s the important part: you don’t have to pay it all upfront.

When you (or a family member) move into residential aged care, you can choose to pay the accommodation cost in one of three ways:

• A refundable lump sum, known as a Refundable Accommodation Deposit (RAD). This is paid upfront and, subject to any agreed deductions, the balance is refunded when you leave care.
• A daily payment, known as a Daily Accommodation Payment (DAP). Rather than handing over a lump sum, you pay an ongoing daily amount, a bit like rent or interest.
• A combination of both. You pay a part lump sum, with a reduced daily payment covering the balance.

If you’re new to the terminology, our Refundable Accommodation Deposits Explained post walks through the fundamentals.

Where interest rates come in

Here’s the catch with daily payments: the amount is calculated using a government-set interest rate called the Maximum Permissible Interest Rate (MPIR). The MPIR is reviewed every quarter, and as interest rates have risen over recent years, so has this rate. That means the cost of paying by daily payment has risen with it.

As at 1 July 2026, the MPIR sits at 8.43% per annum. On a $570,000 room, that works out to a daily payment of roughly $132 per day, or around $48,000 a year. Just a few years ago, when the MPIR was closer to 4%, the same room would have cost about half that to pay for daily.

On top of this, daily payments for new residents are now indexed to inflation every six months, so the amount you pay can continue to rise during your stay.

The rate that applies to you is generally fixed when you agree on your room price with the provider, so the timing of your decision and the payment method you choose both matter.

The good news: how you pay is your choice

Despite what some people believe, aged care providers can’t require you to pay a lump sum. The choice of payment method is yours, and you generally have 28 days after entering care to decide.

Which option works best depends on your personal circumstances, including:

• What assets you have available, and how easily they can be accessed
• Whether the family home will be kept or sold
• The impact on your Age Pension and means-tested care fees
• How long you’re likely to stay in care
• Your estate planning wishes and family circumstances

There’s no one-size-fits-all answer. A lump sum avoids the daily interest cost but ties up capital. A daily payment keeps your money accessible but costs more over time at today’s rates. A combination might strike the right balance, but the numbers need to be worked through carefully, because each option can affect your pension entitlements and other aged care fees differently.

Getting the decision right

Aged care decisions often need to be made quickly and at an emotional time. Taking the time to get professional advice could help you make the most of your available resources and avoid paying more than you need to.

At Insight Wealth Planning, we help Newcastle and Hunter families work through aged care funding decisions, from understanding RADs and DAPs to managing the flow-on effects for pensions, tax, and the family home.

Have you or someone you know started navigating aged care decisions? We’d love to help you talk through your options.

Source: Aged Care Steps Pty Ltd, used with permission. This article provides general information only and does not take into account your objectives, financial situation or needs. Rates and thresholds are current at the time of writing and are subject to change. Please seek personal advice before making any financial decisions.