A higher interest that is paid on the longer maturity bonds of a serial bond issue. In other words, a balloon interest reflects an increased coupon rate on serial bonds that mature at farther future dates. The coupon rate of such bonds is inflated, and hence the term “balloon”.

Bonds that have inflated (balloon) coupon rates present a profitable and cost-saving long term investment (investors will spare transaction costs and commissions over the long-term). The longer maturities are known as balloon maturities.