Balloon Interest


DEFINITION of 'Balloon Interest'

An increased coupon rate on the longer term maturity instruments within a serial bond issue. In a serial issue, bonds mature at different intervals, creating a string of short- to long-term instruments. Higher interest is earned on the long-term bonds, providing incentive to investors for holding the instrument for an increased period.

BREAKING DOWN 'Balloon Interest'

Investors refer to this large coupon rate as balloon interest, since it is often inflated. Serial bonds are usually issued to fund revenue-generating projects with steadily increasing cash flows. The issuer hopes that the project will be near the height of its earning power, by time the balloon interest is due.

  1. Balloon Maturity

    1. A repayment schedule for a bond issue where a large number ...
  2. Serial Bond

    A bond issue in which a portion of the outstanding bonds matures ...
  3. Balloon Option

    An option contract where the strike price increases significantly ...
  4. Balloon Loan

    A type of loan which does not fully amortize over its term. Since ...
  5. Serial Bond With Balloon

    A combination of a serial bond issue and a term bond issue. Essentially, ...
  6. Maturity

    The period of time for which a financial instrument remains outstanding. ...
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