What Is a Retained Interest?
A retained interest (also called an actuarial interest) is an interest in property that is kept by the grantor (also called the transferor or donor) when the property is transferred during the grantor's lifetime. When a property is split into two interests, one interest is the life or term interest (both further referred to here simply as term interests because that is what the IRS calls them), and the other is the remainder interest. Either the term interest or the remainder interest may be the retained interest.
Retained interest also known as a payout penalty) is future, currently unpaid, the interest that some lenders add to the remaining principal of a loan to determine a payout figure in the event that the loan is terminated before the completion of the original term.