Loading the player...

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).

BREAKING DOWN '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.

RELATED TERMS
  1. Residual Income

    The amount of income that an individual has after all personal ...
  2. Residual Value

    How much a fixed asset is worth at the end of its lease, or at ...
  3. Residual Security

    A convertible security which may increase the number of current ...
  4. Billing Statement

    A periodic report that credit card companies issue to credit ...
  5. Grace Period (Credit)

    The number of days between a consumer’s credit card statement ...
  6. Past Due Balance Method

    A system for calculating interest charges based on any outstanding ...
Related Articles
  1. Investing

    Valuing A Company Using The Residual Income Method

    Learn the underlying basics behind the residual income model and how it can be used to place an absolute value on a firm.
  2. Investing

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  3. Investing

    Valuing A Company Using The Residual Income Method

    Residual income is the income a company generates after accounting for the true cost of its capital, which is the cost of funds it uses to finance its business.
  4. Investing

    Economic Value Added - EVA

    Learn about this metric that measures a company's financial performance based on its residual wealth.
  5. Investing

    What's Accrued Interest?

    Accrued interest has two meanings. In accounting, it is interest that has been earned, but the time for payment has not yet occurred.
  6. Personal Finance

    The Credit Card Balance Transfer Trap

    Before you transfer a balance to a credit card with a lower interest rate, know how it affects new purchases and other fine-print traps that can cost you.
  7. Personal Finance

    Procrastinator's Guide To Bill Payment

    Avoid punishing late fees and keep your credit score intact with these 10 tips.
  8. Personal Finance

    Automating Your Bill Payments

    Automation can be a painless (and free) way to remove the stress of bill scheduling from your life - if you do it right.
  9. Insights

    5 Ways to Create Residual Income

    Here are 5 ways through which you can create residual streams of income.
  10. Personal Finance

    Get A Free Ride From Credit Companies

    Find out how to make your credit cards work for you - not against you.
RELATED FAQS
  1. Is residual income considered profit?

    Understand what residual income is and under what circumstances it may be considered profit. Learn how this can benefit personal ... Read Answer >>
  2. How is residual value of assets taxed?

    Find out how and when taxes are assessed on the different kinds of residual value, including the residual value on a leased ... Read Answer >>
  3. What is the difference between residual income and operational income?

    Understand the key factors that go into calculating operational and residual income, as well as what each of these categories ... Read Answer >>
  4. What is the difference between residual income and passive income?

    Learn how passive income helps pay the bills with little work involved. Determine how residual income affects your ability ... Read Answer >>
  5. How is residual value of an asset determined?

    Understand what the residual value of an asset is and how the residual value of an asset is calculated. Learn how residual ... Read Answer >>
  6. What is the difference between terminal value and residual value?

    Read a brief overview of residual value and terminal value, two near-identical terms that refer to the future value of a ... Read Answer >>
Trading Center