CMG Plan: What It is, How It Works, Pros and Cons

Maya Dollarhide is a financial journalist with more than 10 years of experience helping people understand challenging financial topics, such as managing student loans, buying a home, and saving for retirement.

Lea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.

What is a CMG Plan?

A CMG plan was a hybrid mortgage plan launched in the United States in the mid-2000s by CMG Financial. It uses a checking account to reduce the mortgage amount, allowing the borrower to pay less interest each month. The savings balance held in the account can be used to lower the principal of the mortgage balance.

The CMG plan has since been rebranded as all-in-one mortgages, with other lenders offering the loans as well.

Key Takeaways

• The CMG plan was introduced in the mid-2000s by CMG Financial as a way to allow U.S. borrowers access to products similar to the offset mortgage used in the United Kingdom.
• This hybrid-style mortgage uses a checking account to reduce the mortgage amount, allowing the borrower to pay less interest each month.
• CMG plans allow borrowers to make smaller payments toward the loan principal rather than one large payment (done with a conventional mortgage) each month.

How a CMG Plan Works

With CMG plans, paychecks are deposited directly into the mortgage account, and that amount reduces the mortgage balance. These types of mortgages allow borrowers to pay down their mortgage balance faster.

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 Any amount deposited in the account that is not withdrawn through the check-writing process is applied to the mortgage balance at the end of the month as repayment of principal.

The CMG plan is similar to the offset mortgage plans used in the United Kingdom and Australia. Offset mortgages cannot be used in the United States due to tax laws. In the United Kingdom, interest from the savings account can offset mortgage interest for tax purposes, but in the United States, it cannot.

Pros and Cons of a CMG Plan

There are potential benefits to the CMG mortgage plan. First, when the paycheck or other deposit is deposited in the account, it reduces the mortgage’s average monthly outstanding principal balance. When the outstanding principal balance goes down, it may reduce the interest charged.

Interest accrues daily under this type of plan. So, even if that principal balance at the end of the month is equal to what it was at the beginning of the month, you have paid off interest.

The plan also assumes that a minimum of 10% of the paycheck remains in the account at the end of the month to reduce the mortgage’s principal balance permanently. A 10% rate of savings results in a more significant monthly reduction of principal than is required under a traditional 30-year amortizing mortgage. As a result, the mortgage term 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 conventional amortizing mortgage.