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 Any amount deposited in the account that is not withdrawn through the check-writing process is applied to the balance of the mortgage at the end of the month as repayment of principal.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. Checking Account

    A transactional deposit account held at a financial institution ...
  4. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  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 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. Mutual Funds & ETFs

    Why would you keep funds in a money market account and not a savings account?

    Read about the differences between money market accounts and savings accounts, and see why a depositor would elect a money market over a savings account.
  7. Savings

    How Foreign Transaction Fees Work

    Using a credit card when you travel can be costly. Here's what you need to know about foreign transaction fees – plus tips on making purchases abroad.
  8. Savings

    Where To Get A Mortgage If You Have Bad Credit

    Here's where to go if you have a low credit score and still want a mortgage.
  9. Credit & Loans

    5 Ways To Get The Best Mortgage Rates

    A mortgage is the biggest loan most people have. Be sure you get the best possible terms – you'll be paying it off for years.
  10. Savings

    Picking A Lender: Quicken Loans Or A Local Bank?

    Online mortgage lender Quicken Loans has become known for its convenience and customer service. But brick-and-mortar banks offer benefits of their own.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center