So that folks can cut down the time that it takes them to pay off their loan and reduce the total amount of interest forked over over that period, banks and financial advisors recommend that borrowers pay extra every month.

For example, if you borrow $200,000 over 30 years at a rate of 5%, your monthly payments would be around $1074. Over 30 years, you would actually pay $1074 x 360 (months), which is $386,640. That's $186,640 in interest!

You could cut 10 years off your mortgage payment period if you could simply pay your typical mortgage payment plus an additional $246 every month. Moreover, your total payments would be $316,664, saving $69,756!

OK, so maybe now the little voice in your head is saying something like, "I don't want to pay more every month! I want to pay less every month like the title of the article says. Even though I build up forking out more toward your mortgage as a great option, I am going to show you why it is actually not a good option. The major flaw with what the banks and financial advisors are preaching is that it does not take into account the "time value" of money.

That said, let me first explain why financial advisors and the banks preach what they do before we get into the time value of money. Paying off your mortgae faster means much less risk to the bank and it gives them the opportunity to lend the money to others. In addition, when banks decide what people to target for foreclosures, they always pick the people that have PAID MORE toward their mortgage because they expose themselves to less risk. Contrary to popular belief, just because you forked over more money toward your mortgage already does not mean that the bank will not target you. In actuality, homeowners are actually safer from foreclosures when they OWE MORE money.

The Hilton Hotel empire is probably the best example of this. When homes were being foreclosed on left and right during the Great Depression, the Hiltons, even though they fell behind on their payments several times, did not have one property foreclosed on. Basically, since they owed so much money (and still do since they never pay off their properties) they made sure that the banks would not target them.

Regarding financial advisors, I really have no idea why they tell their clients to go this route. They know that those that have forked over more money are targeted first by the banks. They also are costing their clients and themselves a ton of lost profit because of the time value of money which I will explain now.

Just about every single person knows that money was worth more when they were younger because of inflation. If you take that $1074 mortgage payment, for instance, in 30 years time, when the last is due, it would only be worth $437 in today's money.

Whether it's one, ten or one hundred years from now, a dollar today will always be worth more than in the future.

How does the time value of money affect our example?

You cannot simply subtract the mortgage interest amount for a 20 year mortgage from the interest on a 30 year mortgage. What you need to do is calculate the Present Value of every mortgage.

The Present Value of a 30 year mortgage payment of $1074 at a 5% interest rate is $200,066.

The Present Value of a 20 year mortgage with a mortgage payment of $1320 at a 5% interest rate is $200,066.

The two repayment schemes are exactly equal.

In truth, that $246 per month adds up to $59,040 over 20 years so you are not really saving $69,756 but rather about $10,000.

Now, what would happen, for example, if you took that $246 a month and invested it elsewhere in something safe and conservative like a mutual fund?

Averaging a 10% rate of return, you would have $186,804 (Note: an S&P 500 Index Fund would be an excellent choice as the S&P 500 has average a 10.83% rate of return over the last 50 years.) With inflation at 3%, that would be worth $102,597 in today's money.

Now let's ask the question we asked once before to get even more answers. Surely, the longer the income stream lasts, the better, right? So why would the banks recommend that you pay off your mortgage more quickly?

The banks love being able to prove (and make it seem like they are only doing it for your benefit) that their recommendations will "save you money". But the fact of the matter is that the banks simply understand the time value of money better than the average Joe. The banks know that $246 today is worth more now than it will be in 20 years.

There are some good arguments for paying off your mortgage faster like building your equity. But you should understand that every dollar you give the bank now is a dollar that you can't invest.

Giving your money to the bank to avoid forking out 5% interest means that you can't use that money to earn 10% or 12% or 15% somewhere else. How would you like to pay off your home in less than 15 years and also walk away with a little over $60,000 for every $100,000 that you initially borrowed. I show my clients how to do this every single day!

Finally, many people have a misconception about the wealthy that I want to dispel. Most unwealthy people believe that wealthy people don't have mortgages and that they own their homes 100%. Most wealthy people, contrary to popular belief, don't own their own homes without a mortgage because they fully understand that they can invest their money elsewhere and achieve much higher rates of return than they are paying on the mortgage interest in addition to the tax breaks that they receive. Bill Gates took out a mortgage for his new home. The Home Depot doesn't own any of the land or buildings that they use. Why should you pay off your house?

Of course the title of this article talks about actually reducing your monthly mortgage payment while building wealth at the same time and I would love to show you how to do exactly that. If you would like to know how to cut your monthly mortgage payment while at the same time build your wealth then please be sure to contact me.

Ed Brancheau is a mortgage financing specialist who can show you to lower your payments, pay off your mortgage much quicker and build wealth. Call him at 310-770-2369 for more info.