The borrower’s conundrum; How rate Cuts affect under-process loans:
A change in the rate of interest can greatly affect an under-process loan. If the rate change occurs after the customer has applied for the loan but before getting the first disbursement, the previous rate will not be applicable on the loan and the disbursement will happen at the new rate.
The reason the old rates are not applicable is because the entire process of approval takes a lot of time and the rate of interest may change greatly in that duration, as stated by bankers. The only rate which is taken into account is the rate present at the first disbursement.
If the rate experiences a cut in the repo rate and base rate before the first disbursement, then the cut will be linked to the base rate at which the first disbursement occurred. The changes by the bank, however, do not get passed onto its existing customers. The customer can decide to switch onto the new rate, but will have to pay a switch over fee and then be considered as a new customer by the bank.
Existing customers should keep themselves updated about the latest rates being offered to the newer customers by their banks and housing finance companies. If the rate is lower than the existing rate they are subjected to, they should consider switching over.