Residual Interest

AAA

DEFINITION of 'Residual Interest'

1. A charge for borrowing money that accrues on a credit card account between the date the bill is issued and the date the cardholder pays the bill. Residual interest, also called "trailing interest," is only charged to consumers who carry a balance from month to month.

2. A type of interest payment received by investors in a real estate mortgage investment conduit (REMIC).

INVESTOPEDIA EXPLAINS 'Residual Interest'

1. Residual interest can confuse credit card customers who think they have paid their balances in full only to get a new bill for additional interest owed. Cardholders who do not carry a balance do not accrue residual interest; they receive a grace period between the time they receive their bills and the time they pay them. No interest accrues during the grace period.

2. REMIC investors receive residual interest payments after all the required regular interest has been paid to investors within higher priority tranches. Residual interest functions much like common shares in that preferred shareholders receive all required dividends before any amount remaining is divided among common shareholders.

VIDEO

Loading the player...
RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Fannie Mae - Federal National Mortgage ...

    A government-sponsored enterprise (GSE) that was created in 1938 ...
  3. Tranches

    A piece, portion or slice of a deal or structured financing. ...
  4. Residual Interest Bonds - RIBS

    A type of inverse floating-rate bond created by dividing the ...
  5. Real Estate Mortgage Investment ...

    A complex pool of mortgage securities created for the purpose ...
  6. Credit Card Blocks

    The reserving of a portion of a credit or debit card balance ...
RELATED FAQS
  1. Why is it beneficial to innovate financial models and techniques used in quantitative ...

    The majority of consumers use credit cards at some point during their lifetimes to finance major purchases, earn rewards ... Read Full Answer >>
  2. How can I use quantitative analysis to evaluate investment decisions if I don't have ...

    While there are a few legitimate companies advertising that they can consolidate credit card debt, most are illegitimate ... Read Full Answer >>
  3. What are some common models that practitioners use in quantitative analysis of equity ...

    Credit cards can be a helpful component in reaching a financial goal or financing some of life's bigger expenses. Carrying ... Read Full Answer >>
  4. What are some reasons banks deny applications for checking accounts?

    Consumers and businesses use credit to finance major purchases or emergency expenses that exceed regular cash flow. Credit ... Read Full Answer >>
  5. What are the differences between debit cards and credit cards?

    Debit cards and credit cards work in similar ways. Both carry the logo of a major credit card company, such as Visa or MasterCard, ... Read Full Answer >>
  6. Is the prime rate in the US different from the federal funds rate?

    Although the prime rate and the federal funds rate are closely tied to one another, their base rates differ based on market ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    A Guide To Real Estate Derivatives

    These instruments provide exposure to the real estate market without having to buy and sell property.
  2. Credit & Loans

    Take Control Of Your Credit Cards

    The plastic in your wallet doesn't have to hurt your finances. Learn how to manage it responsibly.
  3. Retirement

    Understanding Credit Card Interest

    Paying these rates can impact your disposable income and your investment returns.
  4. Insurance

    Investing In Securitized Products

    Securitized assets are customizable and have a wide range of yields, making them an attractive asset class.
  5. Credit & Loans

    Understanding Credit Cards

    Credit cards are a type of unsecured personal loan between the credit card issuer and the credit card holder.
  6. Personal Finance

    5 Times Cash Rewards Credit Cards Come In Handy

    Using a credit card with cash rewards during emergencies can help you get through tough times, buy you time to pay off costs and even reap a cash reward.
  7. Credit & Loans

    American Express's Main Competition

    American Express competes with Visa, MasterCard, and Discover Financial Services in the credit card space. It also competes with banks to draw consumers.
  8. Credit & Loans

    Credit Cards That Will Get You First Class Flights

    It's getting harder and harder to be upgraded to first or business class on airlines. Here are some credit cards that may help you get those premium seats.
  9. Forex Fundamentals

    Bitcoin Transactions Vs. Credit Card Transactions

    We provide an overview of the differences between bitcoin and credit card transactions, and the advantages of using one over the other.
  10. Credit & Loans

    Top Credit Cards For The Ultra Rich

    Only a few people qualify for these elite cards. The question is, are the lush perks big bucks can buy you worth the cost?

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center