CMG Plan

AAA

DEFINITION of 'CMG Plan'

A mortgage plan in which a borrower's mortgage is structured like a checking account, where paychecks are deposited directly into the mortgage account and the mortgage balance is reduced by that amount. As checks are written against the account during the month, the mortgage balance rises. Any amount deposited in the account that is not withdrawn through the check-writing process is applied to the balance of the mortgage at the end of the month as repayment of principal.

INVESTOPEDIA EXPLAINS 'CMG Plan'

The potential benefits of the CMG mortgage plan are that when the paycheck is deposited in the account, it reduces the average monthly outstanding principal balance of the mortgage on which interest is charged (interest accrues daily under the plan) even if that principal balance at the end of the month is equal to what it was at the beginning of the month.

The plan also assumes that a minimum of 10% of the paycheck remains in the account at the end of the month to permanently reduce the principal balance of the mortgage. A 10% rate of savings results in a greater monthly reduction of principal than is required under a traditional 30-year amortizing mortgage. As a result, the term of the mortgage is substantially shorter, and additional interest charges are saved.

The potential drawbacks of the CMG mortgage plan are that it might carry a higher interest rate than more traditional mortgages, and that a borrower can accomplish the same early retirement of principal by making unscheduled principal payments on a traditional amortizing mortgage.

RELATED TERMS
  1. Compound Interest

    Interest calculated on the initial principal and also on the ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  4. Checking Account

    A transactional deposit account held at a financial institution ...
  5. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  6. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
RELATED FAQS
  1. What net interest margin is typical for a bank?

    In the United States, the average net interest margin for banks was 3.03% in the first quarter of 2015. However, this was ... Read Full Answer >>
  2. What are the main benchmarks that track the banking sector?

    The appropriate benchmarks for tracking banking sector performance depend on the type of banking. For instance, commercial-only ... Read Full Answer >>
  3. What are the major categories of financial institutions and what are their primary ...

    In today's financial services marketplace, a financial institution exists to provide a wide variety of deposit, lending and ... Read Full Answer >>
  4. What is the difference between an investment and a retail bank?

    The activities and types of clients for an investment bank versus those for a retail bank highlight the primary difference ... Read Full Answer >>
  5. Is the banking sector subject to any seasonal trends?

    The banking industry, including retail and investment banks, is subject to seasonal trends. Seasonality is most commonly ... Read Full Answer >>
  6. What are some of the well-known no-load funds?

    The capital adequacy ratio promotes stability and efficiency of worldwide financial systems and banks. The capital to risk-weighted ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Economics

    How Interest Rates Affect The Housing Market

    Understand how rate changes can affect home prices, and learn how you can keep up.
  3. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  4. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  5. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  6. Savings

    Bank Lingo: Routing Number Vs. Account Number

    Each consumer bank account has its own personal ID. And so does the bank. How do these numbers function and how do they protect the account holder?
  7. Savings

    5 Things to Look for in a Private Banker

    When putting all your assets into one private banker basket, it pays to proceed with caution.
  8. Investing

    Do You Need A Private Banker?

    They offer well-heeled clients unparalleled convenience, but could be prone to certain conflicts of interest.
  9. Credit & Loans

    What is a Financial Institution?

    A financial institution is in business to, among other things, accept deposits, make loans, exchange currencies, and broker investment securities.
  10. Investing

    Which Are the World's 10 Largest Private Banks?

    Most of the largest private banking providers in the world are headquartered in Europe or the United States.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!