Testing Mortgage Application Software

December 12, 2024

Mortgage Calculations

Lessons learned

Getting a mortgage and buying a house is one of the biggest financial decisions in many people’s lives because it is a huge responsibility, and homeownership is an integral part of achieving the American dream. For the banking or insurance industries, financing a mortgage is critical because it contributes to revenue growth. Considering all of the rules and regulations, a lot of mortgage software systems are developed to help accept and process mortgage applications. Many business rules, calculations, and processes are implemented in these systems, which makes testing online difficult. Testers need to have knowledge of the business rules of each mortgage type, requiring deep expertise in mortgage domain knowledge, applications, and associated functional testing for each step in the application and approval process. Over the years, we’ve developed an intimate knowledge of how this works and the intricacies of implementing application rules.

Key Considerations

Based on years of hands-on experience, here are the most important things to consider when testing in the mortgage domain:

Marital Status

Are you single, married, or divorced? One factor that mortgage companies consider is the repayment ability of the applicant in relation to marital status. In most cases, if the applicant is married, repayment ability is stronger than a single applicant and, therefore, more money can be borrowed from the bank. If the applicant is divorced, maybe the lender has to consider lump sum expenses or monthly payments required by the divorce settlement. We also have to account for the rules applied to different types of relationships, such as LGBT or “partner” status, which add additional complexities. All of these factors must be accounted for in the application, scored appropriately according to the company’s mortgage scoring rules while complying with regulations, and accounted for in test scenarios.

Age of Applicant

Age will definitely affect the amount of the mortgage someone qualifies for, but do you know the exact boundary of this field? Do you know how retirement age will impact the loan? How about other rules regarding age? For example, in some countries, the retirement age is 65. However, you cannot simply use boundary test cases based on this number only. When the bank evaluates repayment ability, they also check the distance from retirement. Therefore, we also need to calculated simulated cash flows created and create mortgage loan test cases for when the applicant will retire since that can be an indicator of an income change.

Income

This is the most important factor in evaluating the amount to approve for a mortgage. The income calculations for mortgage purposes not only include the money coming into your pocket, but also your predicted expenses. There are different income categories such as annual salary, bonus, holiday pay, benefits, welfare, and compensation owed or due based on a divorce. The final income used for the calculation of the mortgage amount approved is calculated based on each category. There are also many ratios applied to determine an applicant’s score when deciding to approve or disapprove a loan. Understanding the characteristics and elements of approval and disapproval is critical to developing negative test cases when testing mortgage software.

Mortgage loan variations

If there are two applicants, the rules change and total income is not a simple addition of their individual incomes. Each applicant may be weighted differently, and if there are three applicants, the middle income might not even be included in the calculations. The testing team must have deep mortgage domain knowledge in order to design variant test cases based on the number of applicants. Because income is such a driver in mortgage approval, there are many other rules that you may need to account for, such as the applicant’s length of employment at their current and previous employers. An applicant that moves from job to job may have a different risk profile. Changes in income are also a potential determining factor. While an increasing income may be seen as beneficial to the applicant’s ability to repay a mortgage, income stability is also important. For instance, if increased from $50,000 last year to $150,000 this year, there could be a rule that discounts the higher income because of the probability that their income would return to the previous amount.

Previous mortgage

Another special situation that needs to be considered is if the applicant already has a home loan and are applying for a second mortgage. In this case, numbers in the calculation change, such as the interest rate and the percent of the appraised value of the property that the bank is willing to finance. Depending on the country, sometimes this is regulated as well. Other factors include if the applicant will rent the property out or use it as a primary residence. In addition to a second or third mortgage, a related variable is the applicant’s previous mortgage(s) and history of payments being made on time.

Mortgage and loan type

Each variable demands comprehensive test case coverage and requires a deep understanding of the definitions and different lending options. Testing must cover for the four different mortgage types: new building, existing building, second mortgage, and converting from one mortgage type to another. Then there are the different loan types to account for in your testing scenarios. For example, a linear mortgage means payments are the same every month while interest-only loans mean that you only need to pay the interest then pay the entire principal amount at a predefined future date. Additionally, there are different loan types (e.g. 15-year fixed, 30-year fixed, 7-1 ARM, etc.) that come with their own interest rates, and each country or state may be introduce special requirements. Each of these factors are essential to a successful QA testing strategy.

Rules change every year

The bank or government updates mortgage rules or calculations at least once per year. Sometimes, they completely change the rules and others they change key numbers, like interest rates or the maximum allowed mortgage amount based on FHA or other government-based caps. When these changes happen, the testing team needs to collect all information and analyze how these changes impact the application before updating the test cases accordingly.

If your test team starts a project, testing online mortgage application software, don’t forget these important lessons. The ones we have listed are the most important, based on our experience, however there are many other detailed functions your test team must consider and build into your test plan and test cases. As software quality engineers and software testers, our role has become increasingly more important in the Agile development methodology. Being involved in all parts of the lifecycle require deep expertise in technology and the mortgage industry to create user stories with a clear point of view and applicable test logic. Doing this, combined with knowledge of your competitors’ software and how they implement their logic, will give us a head start in providing value to your team.

If you want a team with years of experience in comprehensive and functional testing on mortgage software, contact XBOSoft today!