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Financial advisors and banks have been telling the masses for years that they should fork over extra money every month toward their mortgage in order to reduce the time period for paying off the loan and to cut down on the interest paid.

For instance, if you borrow $200,000 over 30 years at a rate of 5%, your monthly payments would be around $1074. Over the next 30 years, you would make 360 payments (months) of $1074 for a grand total of $386,640. That's $186,640 more than the original loan!

You could cut 10 years off your mortgage payment period if you could simply fork over 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 fork over more every month! I want to fork over less every month like the title of the article says. Even though I build up paying more toward your mortgage as a great option, I am going to show you why it is actually not a good option. The problem with this thinking is that it does not take into account the "time value" of money.

However, before we get into the time value of money, let me first explain why the banks and financial advisors preach what they do. With the banks, it's pretty simple! your paying your mortgage faster means less risk to them and it gives the opportunity to lend the money to someone else. Because the homeowner that has PAID MORE money toward their mortgage is less risky for the bank, the bank prefers to target them first. Contrary to popular belief, just because you paid 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 prime example of this is the Hilton Hotel empire. The Hiltons did not have one property foreclosed on during the Great Depression as others were being foreclosed on left and right even though they fell behind on their payments several times. 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 paid 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.

Everyone knows that money was worth more when they were younger and that it is now worth less. 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.

A dollar now is always better than a dollar in a year's time, or in 10 year's time.

How does the time value of money affect our example?

It's not as simple as just subtracting the mortgage interest amount being saved from the 30 year mortgage. Instead, you must calculate the "Present Value" of every mortgage option to determine which is best.

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

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

Both are 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.

What if you took that $246 a month and invested it in, for instance, mutual funds?

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.

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

"Our recommendation will save you money" is one thing that the banks love to prove and make it seem like they are only doing it for your benefit. 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 the true value of that extra $246 a month that you're giving them now is much greater now than it will be in the future.

There are some arguments for paying your mortgage back quickly - for one thing, the quicker you fork over, the quicker your equity grows. However, you should fully understand that every dollar that you give the bank is a dollar that you cannot invest elsewhere.

Giving your money to the bank to avoid paying 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 people believe that wealthy people own their homes completely and do not have mortgages. The fact of the matter is that most do not own their homes free and clear because they understand that their money can make them more money in other investments rather than sitting in the walls of their homes. Major corporations like Home Depot and Coca-Cola don't own the land that they operate on and Bill Gates took out a mortgage for his new $65,000,000 home (which he could have easily paid cash for, right?) So, why is Joe Average so eager to pay off his mortgage faster?

Of course the title of this article talks about actually cutting 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 decrease your monthly mortgage payment while at the same time build your wealth then please be sure to contact me.