Residential Care Loan Scheme

A deferred loan may be offered to a person living in the borrower’s former home (as described in the schedule of the residential care loan agreement between the Crown and the borrower) if the person meets all of the following eligibility criteria:

• They were living in the former home immediately before the borrower entered long-term residential care, and had lived there on a continuous full-time basis for at least 5 years immediately before the borrower entered long term residential care.
• They continued to live in the former home while the borrower was in long term residential care and remained living there after the borrower’s death
• They have inherited the former home or taken it by survivorship, or inherited an estate or interest in the former home jointly or in common with some other person, or have been left a life interest by the borrower and have a legal right to live there.
• The applicant does not have the ability to repay or refinance the residential care loan.

and one of these criteria:

• The applicant is mentally or physically impaired or
• the applicant has given up employment or the opportunity for employment to care for the borrower, delaying the borrower's entry into residential care or
• The applicant has bought the property together with another family member (being the borrower).

Deferment of the loan repayment is only available in respect of the first person who meets the above criteria, and only applies while that person remains living in the borrower’s former home.

If the former home is sold or otherwise disposed of or the person moves out (other than temporarily), the loan balance becomes immediately repayable.

Interest may be charged under the original loan agreement if a deferred loan application or agreement has not been executed by the time the loan is due to be repaid (i.e. 12 months after death).

Once approved, the deferred loan will be interest-free for the period of the deferred loan.

An application form must be completed to assess whether the person meets the criteria for a deferred loan.  The applicant must provide details of the circumstances that they wish to be taken into account to support their application with verification of their assets and income.  The applicant (and their spouse or partner) will be subject to an asset and income test to ensure that the applicant meets the eligibility criteria. The application will be referred to a legal executive at the Ministry of Social Development who will assess the person’s entitlement to a loan deferral.

If there are multiple owners of the property and one is likely to meet the criteria for deferral, loan deferment will not be offered until after any other owner(s) have confirmed that they are or are not able to repay their share of the loan.  If they are unable to repay they must provide verification that there are circumstances which prevent them repaying their share of the loan up to the value of their equity in the property.

Where the applicant has been left a Life Interest, the deferred loan agreement will be between the Crown, the trustees of the estate and the applicant. The residual owners will not be asked to repay any share of the loan when the application is made.

Every applicant must verify that the rates and insurance are up-to-date or that other arrangements have been made such as rates deferral. A deferred loan should not be offered if the outstanding rates that are deferred are likely to exceed the equity in the home before the loan can be settled.

When a deferred loan is approved, the deferral will be strictly applied to the original home only and cannot be transferred to another home, unless there are exceptional circumstances in which case a new application will be required.  The Ministry of Health will be required to make the final decision in these situations.

A loan deferral agreement will be drawn up setting out details of the loan, including the amount of the loan, the term of the loan and when the loan deferral will be due for review. The agreement must be signed by the relevant parties and a legal executive from the Ministry of Social Development.

An assessment must be completed to ensure that the loan balance to be deferred does not exceed the value of the client’s equity at the date the loan would have become due for repayment (under the original agreement).

The loan balance to be deferred will be based on the capital value of the property less the following:

• the client’s protected equity
• actual funeral costs (if a prepaid funeral was not held) and
• any prior charges recorded in the agreement 

The loan balance to be deferred will be capped at this amount.  The Ministry of Health will confirm this balance.

Default interest will be charged at the rate stated in the deferred loan agreement, and added to the balance repayable, for any breach of the deferred loan agreement (including the term of the loan deferment).

Interest may be charged under the original loan agreement if a deferred loan application or agreement has not been executed by the time the loan is due to be repaid (i.e. 12 months after death).

Once a deferred loan has been approved (does not include loans approved under exceptional circumstances), the deferral will remain in place until the applicant has a change in their circumstances that means they can repay the loan or it is found that a breach of the agreement has occurred.

These deferred loans will be reviewed every two years to confirm that:

• there have been no changes in the applicant’s circumstances that would allow the loan to be repaid
• the applicant is still residing in the property and
• that the rates have been paid up to date and a comprehensive insurance policy is in place.

Deferred loans already in place prior to 1 July 2011 will be reviewed by the Ministry of Social Development every two years to determine that no breach of the agreement has occurred. This will include checks with regards to:

• the applicant is still residing in the former home and
• that district rates are current and a comprehensive insurance policy is in place.

The applicant will also be invited to repay the loan if applicable.

When a loan deferment is offered in exceptional circumstances, the loan will generally be offered for no more than two years or as approved by the Ministry of Health. Two years is a reasonable period to allow the applicant to assess their situation and make arrangements to repay the loan.

Six months prior to the deferred loan becoming repayable, the applicant will be given notice that the loan is due to be repaid.

The applicant can make a further application for deferral prior to the expiry date. This will again be considered by the Ministry of Health who will make the decision to either approve or decline an extension.