Kornel Szrejber – Paying off a Low-Cost Mortgage Can Increase Your Opportunity Cost

Nov 27, 2019

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Kornel Szrejber is the host of the Build Wealth Canada Show. He has been featured for paying off his mortgage in only six years while still in his 20s and becoming one of Canada's youngest retirees at the age of 32. He now runs his popular personal finance and investing podcast created specifically for Canadians.

Kornel interviews top personal finance experts to share their best practices, tips, and tactics when it comes to investing and personal financial planning in Canada. He also runs Canada's largest personal finance and investing conference.

“We sort of just, got scared, let fear take control, buried our heads in the sand, and said, let's just pretty much ignore the stock market and go for this short thing of paying off a mortgage.”

Kornel Szrejber

Worst investment ever

Ready to be financially independent

Kornel and his wife set out to be financially independent straight out of university. They were smart about their money right off the bat.

While other young couples were enjoying the benefits of having well-paying jobs straight from college, Kornel and his wife decided to live off one of their salaries and use the other one to pay off their mortgage quicker.

Fear got the best of them

They were also considering to save for retirement, but before they could make a decision the 2008 financial crisis hit. Investors were freaking out because they were losing hundreds of thousands of dollars in their investment accounts.

As young graduates, they didn't know much about investing in public markets or opportunity costs. And so they got completely scared off from the markets and decided to go for the sure thing, which was paying off their mortgage.

When one good decision leads to a missed opportunity

They did manage to impressively fully pay off their mortgage within six years, something that is rare in Canada. They even got featured in both of the major personal finance magazines in Canada, some large blogs and podcasts, and in a book. But despite this nice milestone, they missed out on an important investment opportunity.

At the time they were getting the mortgage, interest rates were at historic lows, and therefore, they had a guaranteed rate of return. On the other hand, the markets went incredibly up after recovering from the 2008 financial crisis.

Getting rid of their mortgage debt gave them good peace of mind. But by ignoring other investment opportunities, they increased their opportunity cost. Had they put some of the money they used to pay off their mortgage in the stock market, it would have far exceeded the interest payments that they were paying.

Lessons learned

The best time to invest is when the market is at the bottom

When the 2008 financial crisis hit and the markets were really low, that was a really good time to invest and make profits as the markets recovered.

Diversify your investments

While paying off a mortgage fast has its benefits, reducing the payments and investing some of the money in stock markets instead, could get you a much higher return while still enjoying the appreciation of your house.

Don’t let fear drive your decisions

Don’t let fear make you run for what seems safe. Instead, learn more about the risk you’re afraid of taking. After that, you’ll be less afraid and more confident to make a decision.

Andrew’s takeaways

Low levels of debt can be good for you

Generally, debt is bad, but super low levels of debt could be beneficial. For instance, instead of buying a house with cash, you can take a low-cost mortgage and use that cash to invest in other investments with higher returns.

Sometimes our biggest strength becomes our weakness

Even the smartest investors make poor judgment calls, and being a rookie investor doesn’t mean that you can’t win big. Kornel’s worst investment also opened up all sorts of opportunities for him.

Actionable advice

Don’t take the fear or ignorance is bliss approach. Instead, at least learn about DIY (do-it-yourself) investing, especially the division of index investing, see if maybe that is something that you can do.

No. 1 goal for the next 12 months

Kornel’s number one goal is to continue getting top-notch guests for his podcast because he wants to remain at the top of the rankings and continue to be a good personal financial management resource for Canadians to use. He also intends to make the Canadian Financial Summit even bigger next year.

Parting words

“Start using maybe a fee-for-service financial advisor, or at least look into how your current advisor or a financial planner is compensated because that's another very common trap.”