LETTER: Variable-Rate Financing Reckless, Irresponsible

November 16, 2013

(EDITOR’S NOTE: The following letter from Jack Forgosh was read by the Town Clerk at a special meeting of Town Council November 14. Town Council subsequently voted to accept the recommendation of financial advisor Davenport & Company to borrow $1.215 million at a variable interest rate.  Mr. Forgosh has given permission to reprint his letter in the Wave.)


I just learned of your intention to refinance a municipal loan based upon the recommendation of David Rose at Davenport & Company.

I am a seasonal resident of Cape Charles and I hope to become a full time resident in a few more years. While I am not privy to all of the details of our financing, I can tell you with a very high level of confidence that the fixed rate available to the Council and our residents is at historic lows.  I understand the appeal of lowering monthly payments by extending the duration of this loan; however, the risks of a rate increase after 10 years outweighs the short-term savings on our principal and interest payments.

The primary saving is not the difference between a 2.65 percent rate and a 3.1 percent rate but rather from the time extension from a 15-year loan via Sun Trust to a 20-year loan via PNC.

The probability that loan rates [in 10 years] will be higher than the current 2.65 percent is a probability approaching 100 percent. There is also a reasonably high probability that interest rates for this loan, 10 years from now, could easily be reset in the 6-10 percent range. Nobody truly knows where rates will be 10 years from now; however, this Council has the opportunity to refinance the debt of Cape Charles at these historic low rates. [Read more…]