Which statement is true regarding both home equity loans and home equity lines of credit?

Home equity loans and home equity lines of credit (HELOCs) are indeed typically subordinate loans, which means that they are secondary to the first mortgage on the property. This occurs because in the event of foreclosure, the first mortgage lender has the primary claim on the property, and only after that loan is satisfied can the subordinate lenders recover any outstanding debts.

Understanding this aspect is crucial as it highlights the risk profile associated with these types of loans. Lenders typically view subordinate loans as higher risk due to their position in the repayment hierarchy, which can affect interest rates and terms.

On the other hand, a home equity loan is a closed-end loan, meaning it is disbursed as a lump sum and repaid over a set period, while a HELOC is an open-ended loan that allows for borrowing, repaying, and borrowing again within a set credit limit. Therefore, selecting "subordinate loans" accurately encapsulates a common characteristic unique to both types of products, which is fundamental for understanding how these loans work in the context of the overall mortgage landscape.