The balloon payment is going to be large, if you can when you feel real frisky, make one extra payment a year....that will reduce the over all impact of the lack of reduction of the principle in these products......the saying has always been on 30 year product that if you make that extra payment every year, you reduce the term from 30 years and in some cases to 23 years. Even then you can make principle reductions through out the year in amounts of 50.00, 100.00, 150.00, etc...when you can, always make two checks out for this process, one for the regular payment, and one for the principle reduction....make sure you write that on the check or insert instructions in the envelope or they do get confused......always make the principle reductions in amounts of 50's or they can not figure them out.....
Good, you have the modification and by making it a 40 year term they feel that the impact of the 9.125% rate in year 3 will not be such a financial burden....If you can reduce the principle some in the first 2 years when they recast at the 9.125% that to will reduce that payment at that rate as they recast on the existing principle balance every time they recast the loan when it adjusts...confusing, but they have to refigure the payments on the principle balance at the time of adjustment, not the original principle balance....
So....
CONGRATULATIONS 
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Please keep us posted....you did good.