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. Billing Statement

    A periodic report that credit card companies issue to credit ...
  4. Accrued Income

    Income that is earned in a fund or by company by providing a ...
  5. Residual Standard Deviation

    A statistical term used to describe the standard deviation of ...
  6. Previous Balance Method

    A credit card accounting method where interest charges are based ...
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

    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.
  3. Financial Advisor

    Active Risk vs. Residual Risk: Differences and Examples

    Active risk and residual risk are common risk measurements in portfolio management. This article discusses them, their calculations and their main differences.
  4. Insights

    5 Ways to Create Residual Income

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

    Procrastinator's Guide To Bill Payment

    Avoid punishing late fees and keep your credit score intact with these 10 tips.
  6. 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.
  7. Personal Finance

    Delayed Interest: Buy More, Pay Much More Later

    Find out the real cost of buying on a delayed interest plan.
  8. Personal Finance

    How Credit Card Balance Transfers Work

    The pros and cons of credit card balance transfers.
  9. Investing

    How And Why Do Companies Pay Dividends?

    The arguments for dividends include the idea that a dividend provides certainty about a company’s well being.
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. 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 >>
  3. 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 >>
  4. 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 >>
  5. What is the best app to track my residual income?

    Learn about apps that help you manage and track your residual income whether you have complex portfolios with multiple investments ... Read Answer >>
  6. What does residual value represent in a private equity investment?

    Find out why private equity investors, particularly limited partners, are so concerned with the residual value of a fund's ... Read Answer >>
Trading Center