1) The 5 year Balloon means that on the scheduled 61st payment the whole outstanding principal balance is due.
2) The 5/1 ARM means that on the 61st payment the interest rate can adjust up or down to make your payment different than it was the month before. There are a variety of ARMs out there and each has different ways to calculate the adjustment and what factors into the adjustment (index and margin). Some examples are Monthly Treasury Average, LIBOR, etc. Some ARMs have higher margins than others and that is why it is best to talk with a lender near you. As a licensed loan originator I would be happy to explain the differences.
Both of these loans have fixed rate instruments for the first 60 months (5years).
Licensed Loan Originator
Amerifirst Financial, Inc.
1910 S. Stapley Drive #209
Mesa, AZ 85204
NMLS# 213777 AZ LO-0915068
Apply Online: http://www.mattpuzz.com
The 5/1 Arm could be a 30 year product that is fixed for 5 years and then adjusts every year after.
The 5 year balloon could be due and payable in 5 years requiring you to pay it off or refinance at that time.
Also the rates are probably not the same so the payments will be different.
The 5/1 ARM will have the same payments as a 30 year fixed at the same rate. However after 5 years the rate will float. Most will have a 5 point upper cap from the starting point and the first adjustment can be that much. After that the adjustments are typically limited to 2 percent per year. An ARM is tied to either the Treasury index or the LIBOR, this is called the Index. The index rates would then add a "margin" to determine your new rate.
A 5/1 ARM may start at 3.25% with a 5 point cap topping at 8.25% if all goes badly. If the index is at 4 and the margin is 2.5% your first adjustment would be to 6.5%.
Balloons would also be set for a 30 year amortization, but when the Balloon comes due you will need to pay it off, refinance or they may offer you the remaining term at a fixed rate.