A furnace burns fuel to make heat; a heat pump moves heat from outside to inside, which is why it can be several times more efficient. That efficiency advantage shrinks as the outdoor temperature falls, and the right choice depends on your climate, your fuel prices and the rebates available where you live.
How the two systems heat
A furnace burns natural gas, propane or oil and distributes warm air through ducts. Its efficiency is measured by AFUE, which is the share of the fuel's energy that becomes useful heat. A modern condensing furnace can reach the high nineties, but it can never exceed one hundred per cent because it is converting fuel.
A heat pump uses a refrigeration cycle to move heat, so it can deliver more heat energy than the electricity it consumes. Its efficiency is measured by HSPF or by a coefficient of performance, and it can exceed one because it is moving heat rather than creating it. In cooling season the same equipment runs in reverse as an air conditioner.
The practical difference is that a heat pump is a two-in-one system and a furnace is a heater only. If you are also replacing an air conditioner, the comparison is not heat pump against furnace but heat pump against furnace plus air conditioner, and that changes the arithmetic considerably.
| Week | 30-year fixed | 15-year fixed |
|---|---|---|
| 9/17/2026 | 6.95% | 6.26% |
| 9/10/2026 | 6.76% | 6.09% |
| 9/3/2026 | 6.71% | 6.04% |
| 8/27/2026 | 6.66% | 5.98% |
| 8/20/2026 | 6.65% | 5.95% |
| 8/13/2026 | 6.67% | 5.96% |
Source: Freddie Mac Primary Mortgage Market Survey, as published at freddiemac.com/pmms. National averages for conforming loans; your rate depends on credit, points, loan size and property.
Installed cost and the rate context
A furnace replacement is usually cheaper to install than a heat pump, because it reuses the existing fuel line and often the existing ductwork. A heat pump may need a larger electrical circuit, a new outdoor unit pad and sometimes ductwork changes, all of which add labour.
If the work is financed, a secured home equity product is usually cheaper per dollar than an unsecured loan. Freddie Mac publishes the national average mortgage rates that those products are priced against, and the table below is that survey. It is a national average, not your rate.
Ask each contractor to quote the same scope, including the electrical work, the thermostat, the permits and the disposal of the old equipment. A furnace quote that excludes the electrical work and a heat pump quote that includes it are not comparable numbers.
Running costs and efficiency
Running cost depends on the efficiency of the equipment and the price of the fuel it uses. A heat pump's advantage is largest where electricity is cheap relative to gas, and it shrinks where electricity is expensive or the climate is very cold. That is why the same equipment can be the economical choice in one region and the expensive one in another.
The efficiency figures are published and regulated, so ask for the model number and its rating. A quote that names a brand and a size but not a model number cannot be compared with another quote, because the efficiency range within a brand is wide.
Ask the contractor to estimate annual running cost using your actual fuel prices rather than a national average. The calculation is straightforward, and a contractor who will not show it is asking you to trust a number you cannot check.
Cold-climate performance
A standard air-source heat pump loses capacity as the outdoor air gets colder, and at some point it needs a backup heat source. A cold-climate heat pump is designed to keep working at lower temperatures, and some models are rated for very cold conditions. The rating should be in the quote.
The backup matters to both comfort and cost. If the backup is electric resistance heat, it is expensive to run, and a system that switches to resistance heat for much of the winter can cost more than a furnace. Ask how the system is configured to switch over and at what temperature.
A dual-fuel system pairs a heat pump with a furnace and switches to the furnace in the coldest weather. It costs more to install but can be the most economical combination in a cold climate, and it is worth asking about if you are replacing both parts anyway.
Rebates and tax credits
Energy Star publishes the efficiency thresholds for equipment that qualifies for federal tax credits, and many utilities offer their own rebates. Those programmes change, so the threshold should be checked for the year of purchase rather than assumed.
The order of operations matters. Establish the qualifying equipment, confirm the rebate, then finance only the net amount. Financing the gross price and waiting for a rebate means paying interest on money you are about to receive.
Ask the contractor which programmes the quoted equipment qualifies for and who files the paperwork. A rebate that is never claimed is a discount you gave up, and the contractor's willingness to handle it is a reasonable thing to ask.
Financing the installation
The example below uses the Federal Reserve H.15 bank prime loan rate and a standard amortising schedule. It is arithmetic from a published rate, not a quote, and it gives you a benchmark for the contractor's plan.
Worked example, with the assumption stated: $10,000 borrowed at the Federal Reserve H.15 bank prime loan rate of 6.75% (published 2026-09-16) repaid over 60 months on a standard amortising schedule. That gives a monthly payment of $196.83, total interest of $1,810.08 and a total repayment of $11,810.08. This is arithmetic from a published rate, not a quote: a real APR includes fees and is set by the lender from your credit, so your figures will differ. A shorter term costs more per month and less in total interest. Compare both against the contractor's plan before choosing.
If the contractor offers an interest-free period, ask whether it is a true no-interest plan or a deferred-interest one. The difference is whether interest is backdated if the balance is not cleared in time.
Where these figures come from
Related pages
- Heating and cooling costs by state and province
- How to pay for a new HVAC system
- Repair or replace your furnace
- Loan payment calculator
Frequently asked questions
Is a heat pump cheaper to run than a furnace?
It can be, because it moves heat rather than burning fuel, but it depends on the relative price of electricity and gas in your area. Ask the contractor for a running-cost estimate using your actual prices.
Do heat pumps work in cold climates?
Cold-climate models are designed for lower temperatures, and dual-fuel systems switch to a furnace in the coldest weather. Ask for the cold-weather rating of the specific model quoted.
How long does a heat pump last?
Service life depends on the model and the installation. Ask the manufacturer for the figure for the specific unit and compare it with the warranty term.
Should I replace my furnace and air conditioner at the same time?
If both are near the end of their life, a heat pump can replace both functions with one system. Ask for a quote on that basis as well as separate replacements.
Are there rebates for heat pumps?
Often yes, from federal tax credit programmes and from utilities. The thresholds change, so check the current Energy Star guidance and ask the contractor to confirm eligibility.