Home Equity Conversion Mortgages ("HECMs") implicitly bundle nondefaultable credit lines with put options that let borrowers, or their heirs, sell mortgaged homes for the credit line limit when borrowers move or die. The put option's value, net of closing costs, bounds HECM's value to borrowers below. Older homeowners' weak demand is commonly attributed to HECM's "high costs," and the government prices insurance intending to avoid subsidy. However, simulations indicate put value has often exceeded closing costs, even ignoring other embedded options and using backward-looking expectations near the recent price-cycle peak. These results make weak demand more puzzling.

Home Equity Conversion Mortgages ("HECMs") implicitly bundle nondefaultable credit lines with put options that let borrowers, or their heirs, sell mortgaged homes for the credit line limit when borrowers move or die. The put option's value, net of closing costs, bounds HECM's value to borrowers below. Older homeowners' weak demand is commonly attributed to HECM's "high costs, " and the government prices insurance intending to avoid subsidy. However, simulations indicate put value has often exceeded closing costs, even ignoring other embedded options and using backward-looking expectations near the recent price-cycle peak. These results make weak demand more puzzling.

Advancing annuity demand theory, we present sufficient conditions for the optimality of full annuitization under market completeness which are substantially less restrictive than those used by Menahem E. Yaari (1965). We examine demand with market incompleteness, finding that positive annuitization remains optimal widely, but complete annuitization does not. How uninsured medical expenses affect demand for illiquid annuities depends critically on the timing of the risk. A new set of calculations with optimal consumption trajectories very different from available annuity income streams still shows a preference for considerable annuitization, suggesting that limited annuity purchases are plausibly due to psychological or behavioral biases.