I would like to hear from UK readers.

How do lenders actually determine the monthly payment for your mortgage
loan?

According to http://support.microsoft.com/kb/294396/en-us , an annual
interest rate of 12%, for example, is converted to a monthly rate of about
0.9489% by NOMINAL(12%,12)/12, which is equivalent to RATE(12,0,-1,1+12%).
In other words, the annual rate is determined by compounding the monthly
rate.

Ergo, the monthly payment on a loan of 108,000 at 12% over 30 years would be
about 1060.18, computed by PMT(RATE(12,0,-1,1+12%), 30*12, -108000).

However, three online calculators[*] compute a different payment. The
monthly payment is computed by PMT(12%, 30, -108000)/12, which results in
about 1117.29.

That has an effective monthly interest rate of RATE(30*12,
PMT(12%,30,-108000)/12, -108000), which is about 1.0064%.


End notes
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[*] Three online calculators:

http://www.bbc.co.uk/homes/property/...lculator.shtml

http://www.cml.org.uk/cml/consumers/...mortcalculator

http://www.mortgages.co.uk/calculato...alculator.html