Id go option 2. there are dodgy people everywhere, and drug dealers can probably afford to live in the more expensive areas

Seriously though, it sounds like you could pay a lot more off for mot much $, so save on interest, and make a larger profit in the end.

Ask the real estate person (ask a few) about the appreciation on properties in both suburbs - if the more pricey suburb is going to double in 5 years while the dodgier one only goes up 50K then thats another thing you need to consider.

How are you finding the Launceston hills?