You plan to purchase a house for $$118,000$ using a $15-$year mortgage obtained from your local bank. You will make a down payment of $10$ percent of the purchase price. You will not pay off the mortgage early. Assume the homeowner will remain in the house for the full term and ignore taxes in your analysis.

Your bank offers you the following two options for payment. Which option should you choose?

Option $1$: Mortgage rate of $5\%$ and zero point.

Option $2$: Mortgage rate of $4\mathrm{.}85\%$ and $1$ point.

Group of answer choices

Option $1$ is the better choice. The present value of the monthly savings, $$1,056\mathrm{.}81,$ is less than the points paid up front, $$1,062.$

Option $2$ is the better choice. The present value of the monthly savings, $$1,056\mathrm{.}81,$ is less than the points paid up front, $$1,062.$

Option $1$ is the better choice. The present value of the monthly savings, $$1,488\mathrm{.}60,$ is greater than the points paid up front, $$1,062.$

Option $2$ is the better choice. The present value of the monthly savings, $$1,488\mathrm{.}60,$ is greater than the points paid up front, $$1,062.$