'CMG Plans' is explained in detail and with examples in the Banking edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
CMG Plans are special mortgage plans. In these types of plans, the mortgage of the borrower is set up to work like a checking account does. Instead of depositing the employee’s payroll to a traditional checking account at a bank, the individual’s company deposits paychecks directly into the mortgage account. Once a check deposits, the mortgage balance owed by the individual becomes reduced by this deposit total.
The CMG Plans accounts also work like a checking account as the individual writes checks against the account. When the checks clear or the owner withdraws money from an ATM machine, the balance increases by the amount taken out or cleared. Money that remains in the account that has not been taken out by the end of the month becomes permanently applied to the mortgage balance. This acts as principle repayment.
There are significant benefits to such CMG Plans. As paychecks become deposited to the account, the average outstanding principle amount for the month on the mortgage is reduced. This average outstanding monthly principle turns out to be the amount on which banks charge interest. Interest accrues on a daily basis with these plans. This means that interest totals on the mortgage are reduced even if the principle amount at the conclusion of the month remained the same as it was on the first day of the month.
The balance actually would not be the same at the month’s end. These CMG Plans require that minimally 10% of the mortgage holder’s paycheck stays with the account by the end of the month. This is how the principle balance becomes permanently reduced over time. Such a 10% of payroll savings towards the mortgage means that principle reduces quicker than typical 30 year amortizing mortgages require. The final result is that the amount of time on the mortgage is significantly less. Greater interest charges will be saved by the mortgage holder this way.
With interest rates at historic lows, these CMG Plans make greater sense than simply keeping the money in a non interest paying checking or negligible interest bearing savings account. The borrower literally begins to earn the same interest rate of the mortgage on the literal day that his or her company affects the payroll deposit. It does not hurt the borrower or cause any negative consequences in the account as bill pays, cash withdrawals, or check writing activities are performed. Regardless of how much of the money is taken back in expenses, the average monthly balance of the mortgage and associated interest rate charges come out lower.
There are two downsides to such CMG Plans. It is possible that these types of mortgages will come with a higher interest rate than a more typical mortgage would. Paying a higher rate for this service turns out to be mostly unnecessary, since borrowers can get the same results of early principle retirement simply by paying additional principle repayments on their normally amortizing mortgages.
The other downside concerns eligibility requirements. Only consumers with strong and consistent income streams are able to utilize these types of CMG Plans. The average person would not qualify for them.
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