Ms. Dillon takes out a mortgage loan for the amount of $200,000 at a contract interest rate of 5.25% with monthly payments over 20 years.

1. Suppose the lender charges $2,000 in points. What is the before-tax EBC if the borrower repays the loan at the end of the 5th year? What is the after-tax EBC if Ms. Dillon is in the 15% tax bracket?

2. If the lender charges $2,000 in points, what is the annual percentage rate (APR) that he must disclose to Ms. Dillon?

(Show all work)