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. Luhn Algorithm

    An algorithm used to validate a credit card number.
RELATED FAQS
  1. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  2. What is the best way to start to rebuild your credit after a bankruptcy?

    Bankruptcies can be devastating to your credit score. Even worse, a bankruptcy will be listed on your credit report for between ... Read Full Answer >>
  3. What were the primary financial crimes involved in the ZZZZ Best case?

    ZZZZ Best was a company started by Barry Jay Minkow that claimed to be a carpet cleaning business. In fact, it was a Ponzi ... Read Full Answer >>
  4. Can a creditor sue me for a delinquent account?

    If a credit card account becomes delinquent, the creditor can sue the debtor for the balance as soon as the delinquency occurs. ... Read Full Answer >>
  5. How do I transfer my credit card history from one country to another?

    It is currently not possible to transfer your credit history to another country if you relocate. The credit metrics used ... Read Full Answer >>
  6. What are some examples of simple interest loans?

    Two good examples of simple interest loans are simple interest car loans and the interest owed on lines of credit such as ... 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. Fundamental Analysis

    American Express Returns Vs. DJ Industrial Average

    American Express has handily outperformed the Dow Jones Industrial Average since 2009, but unusual weakness in the last year is taking its toll.
  6. Credit & Loans

    Credit Card Review: Platinum American Express

    Take a closer look at the gold standard of luxury travel rewards credit cards, the American Express Platinum, and find out what makes it so unique.
  7. Credit & Loans

    Credit Card Review: Citi Simplicity

    Understand how the Citi Simplicity credit card works, what its pros and cons are, and which kinds of consumers would be happiest with this card.
  8. Credit & Loans

    Credit Card Review: Discover it Miles

    Understand what makes a credit card valuable and possible drawbacks; learn about the Discover it Miles card and how it may benefit a consumer.
  9. Credit & Loans

    Credit Card Review: Chase Sapphire Preferred

    Learn why the Chase Sapphire Preferred card is ideal for users who travel a lot and like to eat at restaurants, and discover pros and cons of having this card.
  10. Credit & Loans

    Credit Card Review: Chase Slate

    Take a closer look at one of the most popular balance-transfer credit cards on the market: the Chase Slate card with a 0% balance transfer fee.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!