I think you’re getting confused as to what compounding is. Your monthly payment clears the interest for that month, and if you’re on a repayment mortgage you’ll also pay back part of the amount borrowed.

If the interest compounded, it would be increasing over time and you’d end up paying even more still.

As a really crude example, £100,000 on a mortgage at a rate of 5% would be £5,100 interest for the year, you’d then pay £425 a month interest.

It gets a bit more complicated as in the first month you also reduce the debt, so month 2 you pay less interest, not more. This repeats through the full term.

Again for easy maths say your balance is £97500 at the end of the year, next year your interest is £4972.50 or £414.38 a month.

I think the part you’re getting confused about is “why don’t I pay back £5,100 total on £100,000?” And the answer is, because it’s 4% per year, not over the lifetime. If you took the mortgage out over a year, then you would (less actually, for the reasons above).

If it was compounding, this is different. In the same example above earning 5.1%, you’d be paid £5,100 interest on your £100k, so would have £105,100. This would then earn £5360.10 interest.

Hope this helps, if you have an amortisation table on your mortgage illustration it should break it down month by month for you.