Heat Pump vs Furnace: A Cost Comparison People Always Miscalculate

The heating technology decision—heat pump vs. furnace—is shifting rapidly. Ten years ago, furnaces dominated. Today, heat pumps are becoming standard due to efficiency and evolving utility incentives.

But the cost comparison is more complex than equipment price and efficiency rating. Most people miscalculate by ignoring electricity rates, backup heating needs, installation complexity, and regional climate differences.

Understanding Heat Pumps vs. Furnaces

Furnace (Gas or Electric):

Heats by combustion (gas) or resistance (electric)

Efficiency: 80-98% AFUE

Fuel: Natural gas or electricity

Cost: $3,000-$6,000

Setup: Direct replacement, simple install

Lifespan: 15-20 years

Heat Pump (Air-Source or Ground-Source):

Moves heat from outside air into home (or ground)

Efficiency: 300-400% COP (Coefficient of Performance) in mild climates, worse in extreme cold

Fuel: Electricity only

Cost: $6,000-$12,000+ (especially ground-source)

Setup: More complex installation

Lifespan: 15-20 years

Backup heating: Often requires electric resistance or gas furnace

The Operating Cost Comparison (Where People Miscalculate)

The biggest mistake: comparing equipment efficiency without accounting for fuel prices.

A 98% efficient gas furnace might cost less to operate than a 400% efficient heat pump if:

Gas is cheap in your area

Electricity is expensive

You're in a cold climate (heat pump efficiency drops in extreme cold)

Real cost comparison example:

Scenario: 2,000 sqft home, cold climate, average heating need = 100,000 BTU/day for winter

Gas Furnace path:

Equipment + install: $5,000

Gas cost (at $4/therm): 100,000 BTU = 10 therms = $40/day for heating season

Heating season: 150 days (October-March)

Annual gas heating cost: $40 × 150 = $6,000/year

Equipment cost amortized: ~$300/year

Total annual heating cost: $6,300/year

Air-Source Heat Pump path:

Equipment + install: $9,000

COP in cold climate: 2.5 average (vs. 3.5+ in mild climates)

100,000 BTU with COP 2.5 = 40 kWh needed

Electricity cost (at $0.14/kWh): 40 kWh × $0.14 = $5.60/day

Heating season: 150 days

Annual electricity heating cost: $5.60 × 150 = $840/year

Equipment cost amortized: ~$540/year

Backup heating (electric strip) on extreme cold days: ~$200/year

Total annual heating cost: $1,580/year

Heat pump saves $4,720/year in this scenario.

But the comparison changes dramatically if:

Electricity is expensive ($0.22/kWh): HP cost becomes $2,520/year

You're in a mild climate where gas heats cheaply: Furnace cost might be $4,000/year

Backup heating is extensive (cold climate): Heat pump climbs to $2,000/year

There's no universal winner. It depends on your local energy prices and climate.

The Climate Factor: Where Heat Pumps Struggle

Heat pumps lose efficiency in extreme cold because extracting heat from freezing air requires more energy:

Mild climate (40°F average winter):

Heat pump COP: 3.5-4.0 (very efficient)

Gas furnace advantage: Minimal

Moderate climate (25°F average winter):

Heat pump COP: 2.5-3.0 (decent)

Gas furnace becomes more competitive

Cold climate (5°F average winter):

Heat pump COP: 1.5-2.0 (barely better than resistance heat)

Heat pump requires extensive backup heating

Gas furnace advantage: Significant

Extreme cold (below 0°F regular):

Heat pump efficiency collapses

Backup heating becomes primary

Gas furnace is clearly superior

Most heating guides don't account for this nuance. A heat pump in Minneapolis performs very differently from a heat pump in Austin.

The Electricity Rate Reality

Heat pump economics hinge on electricity costs relative to gas:

Scenario Winner Why $0.10/kWh electricity, $4/therm gas Heat pump Cheap electricity $0.15/kWh electricity, $4/therm gas Heat pump Still favorable $0.20/kWh electricity, $4/therm gas Furnace Gas is cheaper $0.25/kWh electricity, $4/therm gas Furnace Gas is much cheaper $0.12/kWh electricity, $6/therm gas Heat pump Expensive gas

Check your local utility rates. If electricity exceeds $0.18/kWh and gas is under $5/therm, furnaces are likely cheaper.

Conversely, if electricity is under $0.14/kWh, heat pumps win despite installation cost.

Installation Complexity: Heat Pump Hidden Costs

Heat pump installation is more complex than furnace replacement:

Outdoor unit placement - Requires adequate space, may need landscaping

Refrigerant lines - Must be precisely sized, sealed, and charged

Electrical upgrade - Heat pumps draw significant power; some homes need electrical upgrades ($1,000-$3,000)



Ductwork modifications - Heat pumps require balanced airflow design

Backup heating - Requires integration with existing system or new installation

These complicating factors add $2,000-$5,000 to heat pump costs compared to furnace replacement.

Most quotes don't itemize these, so you don't realize the true cost.

The Incentive Factor: Subsidies Change Economics

Federal tax credits (30%) and state rebates make heat pumps increasingly cost-competitive:

Example with incentives:

Heat pump system: $10,000

Federal 30% tax credit: -$3,000

State rebate: -$2,000

Net cost: $5,000

This matches or beats a $5,000 furnace

However, furnaces typically don't qualify for federal tax credits.

The incentive landscape is changing rapidly. Check current incentives before deciding.

In 2025, incentives favor heat pumps in many states, shifting the economics decisively.

Actionable Decision Framework

Choose Heat Pump if:

Electricity costs < $0.15/kWh and gas costs > $4.50/therm

Your heating climate is mild to moderate (not extreme cold)

Your state offers significant rebates/incentives

You're replacing existing AC (no additional outdoor unit cost)

You want integrated heating/cooling efficiency

Long-term ownership (15+ years)

Choose Furnace if:

Electricity costs > $0.20/kWh or gas costs < $3.50/therm

You're in a cold climate (below 0°F regularly)

No state incentives available

You need budget-friendly installation today

You want simple, proven technology

Short-term ownership (less than 10 years)

Hybrid approach:

Install a heat pump for heating/cooling, with a gas furnace as backup for extreme cold. This captures heat pump efficiency while avoiding extreme-cold performance collapse.

More expensive upfront, but optimal performance in many climates.

The Bottom Line: Fuel Prices and Climate Determine the Winner

There is no universal "best" choice between heat pump and furnace.

The decision depends entirely on:

Your local electricity and gas prices

Your climate (average winter temperature)

Available incentives in your state

Your planned holding period

Run the numbers with your actual local rates before deciding.

A heat pump in California with cheap electricity wins decisively. A heat pump in Minnesota with expensive electricity and extreme cold might lose.

Don't accept the industry trend toward heat pumps without verifying the economics make sense for your specific location and situation.