What is the CMG plan’
Plan BC plan is a mortgage in which the mortgage borrower has the structure of the account where salary is deposited directly into the account of the mortgage and loans balance is reduced by that amount. As checks written to the account during the month, the loan balance rises. Any amount deposited into the account which is not resolved by checks process applies to arrears on the mortgage at the end of the month, and the repayment of principal.
The penetration of ‘CMG plan’
The potential benefits of the CMG mortgage plan are that when the check is deposited in the account, it reduces the average monthly outstanding principal balance of a mortgage loan 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 in the beginning of the month.
The plan also assumes that at least 10% of the salary remains in the account at the end of the month to permanently reduce the principal balance on the mortgage. A 10% saving rate leads to an increase in the monthly reducing the principal than required under the traditional 30-year amortizing mortgage loan. As a result, the mortgage period is significantly shorter, and saved an additional interest.
Potential drawbacks of the CMG mortgage plan are that it can carry a higher interest rate than more traditional mortgages and the borrower can make the same early redemption of the main debt by making unscheduled principal payments on a traditional mortgage amortization.