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Hello and thank you for using Just Answer.
I will agree with you. Option one seems to be the better of the 3 options.
You will have more of a saving with the first option and be able to pay down the loan faster.
I would not want the tax and insurance ( escrow) included in my mortgage, because you are then paying interest on the tax and insurance reserves attached to the loan. That is a waste of money, unless you are trying for a higher interest payment to write off on your taxes at the end of the year.
Please let me know if you have any specific questions about wither of the 2 options and I will be more than happy to help.