Boiled down, a $200,000 at a rate of 5% would cost about $1074 per month over 30 years. Over 30 years, you would actually pay $1074 x 360 (months), which is $386,640. That's $186,640 in interest!

If you could find an extra $246 a month, and fork over $1320 a month into the mortgage, you'd cut 10 years off the repayment period - the loan would be fully paid in only 20 years. You would save $69,756 over the course of the loan and reduce your total payments to $316,664.

Now, you might be saying something to yourself right now like "But Ed, I want to reduce my payments like the title of the article says� I don�t want to pay more each month!" So, now I am going to show you why forking out extra each month, while better than making regular payments, is not the best way to pay off your house and actually make money. 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. It�s pretty simple when talking about the banks. It�s less risky to them and they make more money by lending the money to others when you pay your mortgage early On top of that, banks always pick the homeowners that have PAID MORE money toward their mortgage when they decide who to foreclose on because it exposes them to less risk. Contrary to popular belief, just because you forked over more toward your mortgage already does not mean that the bank will not target you. Homeowners are actually safer from foreclosures when they OWE MORE money to the bank.When homeowners OWE MORE to the bank, they actually make themselves less of a target and are much safer.

The Hilton Hotel empire is probably the best example of this. During the Great Depression, when homes were being foreclosed on left and right, the Hiltons did not have one property foreclosed on even though they fell behind in the 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 the banks first target those that have forked out more. 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 is worth less now than it was when they were younger. If you take that $1074 mortgage repayment, for instance, in 30 years time, when the last charge 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 much more.

So, in our example, how does the time value of money affect everything?

It�s not as simple as just subtracting the mortgage interest amount being saved from the 30 year mortgage. What you need to do is calculate the Present Value of each mortgage.

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

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

Both are equal.

The $69,756 "savings" in the interest rate is really just the effect of adding the extra $246 a month into the repayments - in fact, that $246 a month adds up to $59,040 over 20 years.

What if you took that $246 a month and invested it in, for example, 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.) That would be worth about $102,597 in today�s money with inflation hovering around 3%.

Now let�s ask the question we asked once before to get even more answers. 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 in reality, the banks really understand the time value of money. 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 good arguments for paying off your mortgage faster like building your equity. However, you should fully understand that every dollar that you give the bank is a dollar that you cannot invest elsewhere.

I don�t know about you, but I think that its pretty stupid to worry about handing over more overall interest when that money can easily make you two to three times as much money while still paying off your house.

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. 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 cutting your monthly amount 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 amount while at the same time build your wealth then please contact me, Ed Brancheau, at 310-770-2369.