An accommodation bond is rather like an interest-free loan given to an aged-care facility by pensioners upon taking up residence or shortly thereafter. By law the bond must be used to improve the building facilities or the range of services provided.

Not everyone is required to pay an accommodation bond. The factors involved include the type of aged-care facility under consideration, the level of care required, and the financial status of the retiree. With financial hardship provisions legally in effect, a person who cannot afford to pay a bond cannot be asked to do so; however, that person will still receive the level of care needed.

There is no fixed level for accommodation bonds. The amount of each bond is negotiated between the facility and the pensioner, and varies substantially even among the residents within a single home. Once the terms of a bond have been negotiated and agreed upon, the rate cannot be raised later.

The facility is allowed to draw upon the accommodation bond at a monthly retention rate fixed by law (currently $280 per month for a period not to exceed five years). When the pensioner leaves the facility, the remaining funds are returned, transferred to their new aged care home, or applied to the estate.

Accommodation bonds and retention amounts can be paid as a lump sum, a recurring (monthly or fortnightly) charge, or as some combination of the two.

If a lump sum payment is not made, the pensioner is generally required to pay the interest on the amount that would have been deposited, in addition to the retention amount. At the end of the maximum retention period (currently five years), the periodic payment is reduced by the retention amount (currently $280).

A retiree cannot be charged a bond that leaves them with less than $33,500 in assets. But even with that proviso, accommodation bonds can be staggeringly high, with six figures not uncommon. To raise such an amount, it is often necessary to sell the family home, rather than deed it to one’s heirs.

Another method for obtaining the funds necessary for an accommodation bond is to take out a reverse mortgage on the family home. Although most lenders of reverse mortgages require the borrower to inhabit the property, a few allow homeowners to access their equity and then to rent out the home to cover the bond as a recurring charge, as discussed above.

If the amount of rent charged is sufficient, it can also begin repayment of the loan at the same time. Although the income earned would be taxable, in this scheme neither the home nor the income derived would be assessed by Centrelink.

Serving as a landlord for renters in one’s home while living in an aged care facility is not a solution that will please everyone. However, even if it becomes necessary to sell the house after all, this scheme allows a greater length of time to do so properly.

Accommodation bonds can be discussed thoroughly with Centrelink’s free Financial Information Service. Another source for free information on this subject is the National Information Centre on Retirement Investments (1800 020 110).