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Ballon Interest refer to a higher interest that is paid on the longer maturity bonds of a serial bond issue. In other words, a balloon interest refers to paying a higher coupon rate on financial instruments gradually mature at regular intervals until the whole issue matures.
The coupon rate of such bonds is inflated because it is gradually rises over the life of the bond issue, and hence the term balloon.
The Advantage of the balloon interest
Balloon interest allow bondholders to hold onto debt longer by reduce that fixed payment amount in exchange for making a larger payment at the end of the loan’s term.
