RAD, DAP or RAC? Decoding Aged Care Costs in Melbourne in 2026

Published 30/04/2026 
By Steven Woodford, Senior Financial Adviser

For many Melbourne families, the aged care journey begins well before a move into residential care is ever made. It may start with helping a parent access extra support at home, arranging assessments, or quietly realising that a loved one may soon need more care than the family can provide alone.

These decisions are often emotionally heavy enough on their own. The most difficult part should not be trying to decode industry jargon, compare cost structures, or work out what terms like RAD, DAP and RAC may mean for the family home, cash flow or long-term retirement plans.

In 2026, that clarity matters more than ever. Since the Support at Home program replaced Home Care Packages on 1 November 2025, families are increasingly being asked to make financial decisions that are both complex and deeply personal.

You don’t have to navigate those decisions alone, but having the right clarity early can make a meaningful difference to the path you take.

In this article:
This guide explains how aged care accommodation costs work in 2026, including: the difference between RAD, DAP, and RAC; what changed after 1 November 2025; how the 2% annual retention rule works for new refundable lump sums; why the current 7.96% MPIR matters; and what Melbourne families should consider when weighing up the family home, cash flow, and broader retirement planning.

Why do Aged Care Decisions Feel More Financial in 2026?

Support at Home now delivers government-funded aged care services designed to help older people stay at home for longer, while residential aged care sits under its own fee and accommodation ruleset. In practice, this means that families are often comparing not only care needs but also timing, assets, income, refundability, and how each option fits within a wider retirement plan.

These decisions rarely sit in isolation. They often intersect with broader retirement considerations: how long existing savings will last, what role superannuation will play, and how to structure income in later life.

This is where structured retirement planning becomes important, helping families map out future needs, understand available resources, and make decisions with a clearer long-term view.

What do RAD, DAP and RAC actually mean?

What is a RAD?

A RAD is a Refundable Accommodation Deposit. It is a lump sum paid towards the cost of an aged care room in which the resident is required to meet the full accommodation cost. If all or part of the accommodation is paid as a lump sum, the remaining balance must be refunded when the resident leaves the aged care home, but any permitted deductions will reduce what is returned.

What is a DAP?

A DAP is a Daily Accommodation Payment. Instead of paying a lump sum, the resident pays an ongoing daily amount for their accommodation, calculated using the government-set MPIR. This may preserve capital in the short term, but it creates a continuing expense rather than a refundable balance. For residents entering care on or after 1 November 2025, DAP indexation can apply twice a year - 20 March and 20 September.

What is a RAC?

A RAC is a Refundable Accommodation Contribution. It applies when a person is assessed as eligible for government accommodation assistance, meaning they’re only required to contribute a part of the cost. The daily equivalent is called a DAC or Daily Accommodation Contribution. Whether a person pays a RAD/DAP or a RAC/DAC depends on their means assessment and their capacity to contribute towards accommodation costs.

What Changed in November 2025: the 2% Retention Rule

For anyone first entering residential aged care after 1 November 2025, who has or will pay by refundable deposit in full or in part, providers now retain a small portion of each new RAD or RAC. My Aged Care states that the retained amount is calculated at 2% per annum, applied to the daily RAD or RAC balance, and deducted regularly.

This is one of the most important practical changes for families to understand. A refundable lump sum can still be an appropriate strategy in some situations, but it is no longer quite the same as simply “parking” money and getting all of it back later. 

From 1 November 2025, anyone moving into care and paying a RAD will have 2% deducted each year for up to five years.

Why the MPIR Matters So Much in 2026

If you are comparing RAD and DAP, the Maximum Permissible Interest Rate (MPIR) is one of the most important numbers to highlight in this conversation. The current MPIR for residents entering care between 1 April 2026 and 30 June 2026 is 7.96%.

Take note: the daily-payment option (DAP) can become more expensive than expected over time, particularly in higher-rate residential settings.

RAD vs DAP: The Cost of Choice in 2026

Illustrative example only. This comparison does not take personal circumstances, means testing, pension impacts, daily balance calculations, or provider-specific arrangements into account.

At the current MPIR, a “pay daily for now” approach might feel like flexibility, but it also has the potential to place significant pressure on ongoing cash flow. On the other hand, paying a full RAD could reduce daily accommodation costs while tying up capital and exposing that lump sum to the new retention framework. 

In many cases, the best answer isn’t purely mathematical–it depends on the broader household situation, priorities, and how each option fits into the family’s long-term plans.

Can you Pay Part RAD and Part DAP?

Yes. My Aged Care explains that accommodation can be paid in one of three ways: 

• as a refundable lump sum
• as daily payments, or 
• as a combination of both. 
   

It also notes that if a resident has paid only part of a refundable lump sum, they can ask the aged care provider to draw the remaining daily accommodation amount from that lump sum balance.

That creates room for a more balanced strategy. For example, a family might choose to pay part of a RAD to reduce the ongoing DAP burden, while still retaining a portion of the capital for a spouse remaining at home, their future care needs, unexpected emergencies, and broader retirement planning.

Can you Keep the Family Home and Still Qualify for Aged Care?

This is one of the most common questions families ask our team of financial advisors, and the answer is often yes–but not without condition.

If the family home is retained, a capped amount of $214,884 as of 20 March 2026–or the net market value if lower–is included in the means assessment. If the individual is part of a couple, each partner is treated as owning half the property, and so the cap is then applied to each half.

However, the home is not counted as an asset if it is occupied by a protected person, such as a partner, dependent child, qualifying carer, or qualifying close relative who meets the relevant criteria.

Families are often surprised by how quickly these decisions can escalate. In many cases, there’s pressure to make a call within a short timeframe, and that’s when important financial considerations can be overlooked.

"The better question is often not, “Can we keep the home?” but, “What are the consequences of keeping or selling the home on means testing, cash flow, the person remaining at home, and the broader retirement plan?”

- Steven Woodford, Senior Financial Adviser

Book an Appointment with Steven at Frontier Financial Group

Why Retirement Planning Matters

For many Melbourne families, aged care funding is not only an aged care issue. It is a broader retirement planning issue.

A household may have substantial wealth tied up in the family home but limited liquid cash flow. One partner may need to move into care while the other remains at home and still needs financial security. Adult children may be trying to support the decision emotionally while also worrying about timing, assets and whether the family is making an irreversible mistake.

This is where a retirement-planning lens becomes especially valuable. Decisions around aged care funding are rarely just about care. They shape income, asset structure, and long-term financial security across the household.

Done well, financial advice connects these decisions back to the bigger picture–helping families understand how superannuation, income streams, debt, and asset structures all interact at this stage of life.

It’s not just about choosing how to pay for care today, but about ensuring those choices continue to support financial stability and flexibility in the years ahead.

Aged Care Financial Advisor or Placement Agent: What is the Difference?

A placement agent may help a family identify facilities, compare availability and manage parts of the admissions process. 

An aged care financial advisor looks at the financial strategy behind the decisions: how accommodation should be paid, how the means assessment affects outcomes, whether the family home should be retained or sold, how Age Pension entitlements may be affected, and how the decision fits into the broader retirement picture being painted.

That distinction matters: a room may be suitable from a care perspective, but still create unnecessary financial strain if the payment structure prior to entry is poorly chosen.

Financial Advice Can Make a Real Difference

My Aged Care strongly recommends engaging the services of an independent financial adviser when determining which accommodation payment option is the best fit for you. It’s important to remember that these choices can affect not only accommodation costs, but also fees, asset position, family liquidity, and the shape of one’s retirement plan going forward.

Speak to an Aged Care Financial Advisor at Frontier Finance