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. Fullz

    A slang term that criminals who steal credit card information ...
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

    Meet The Company Behind Your FICO Score

    There are other credit scores that evaluate lending risk, but FICO is still the choice of most U.S. lenders.
  6. Stock Analysis

    How MasterCard Likely Earned a Spot in Your Wallet

    An in depth look at MasterCard and its future prospects as an investment.
  7. Credit & Loans

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible – if a bit more complicated – to build a credit history without traditional credit cards. Just follow these steps.
  8. Credit & Loans

    Terrible Credit Score? Try These Credit Cards

    When your credit is less than stellar you have fewer choices. But some are still better than others. Here's our read on which cards to get.
  9. Credit & Loans

    Barclaycard Arrival Plus World Elite Master Card

    Should you pay the annual fee (waived the first year) for this rewards travel card? See how it compares.
  10. Credit & Loans

    Is PayPal's Credit Card Worth Getting?

    You can use PayPal with credit cards from many issuers. But now you can also use a PayPal card – and apply the rewards directly to your PayPal account.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center