You are choosing between two mortgage options for a $1,000,000 property. The first option is a 60% LTV mortgage at an interest rate of 7%. The payment on this mortgage is calculated as if it were a 30 year mortgage, but the mortgage balance is due in 10 years. This loan also charges a 1% origination fee. The second option consists of two loans combined together. The primary loan (first mortgage) is a 50% LTV loan at an interest rate of 6.5%. This loan is an Interest Only loan due in 10 years and the loan charges a 1% origination fee. The secondary loan for this option is a 10% LTV loan at an interest rate of 9%. This loan is fully amortizing and is also due in 10 years and charges a 2% origination fee. Based on your previous work, which loan should be chosen and why? Group of answer choices:

The first option because it has both the lowest closing costs and the lowest balloon payment in 10 years.

The second option should be chosen because it has the lowest closing costs, the lowest effective rate, the lowest payment, and the lowest payment in 10 years.

The second option should be chosen if you can afford the higher closing costs because it has the lowest effective rate, the lowest payment, and the lowest balloon payment in 10 years.

It depends, but a highly risk averse borrower should choose the first option because it has the lower balloon payment in 10 years.