Heat Pump vs. Furnace | How to Win Both Ways?

Is your furnace getting old? Maybe that old oil/propane furnace is spewing fumes, and it’s a hassle getting refills for your oil or propane tank. And then there’s the outrageous heating bills…they are climbing all the time.

If you’ve started comparing heat pump vs. furnace systems, you’re not alone. Many homeowners are now asking whether switching to a heat pump could save money, improve comfort, or even make their homes more energy efficient.

Good news!! There has been no better time to convert to electric heat pumps for your home than right now! The tax credits and substantial rebates being offered in the U.S. have made heat pumps a very attractive option. 

Do you know that you could combine a heat pump and traditional furnace for a ‘dual fuel’ system which can save you the most money on heating bills? 

Read on and let’s get you started on the best heating system hand-in-hand and save you money!

And when you need a qualified professional for your heat pump and furnace, give SuperTech a call!! Our experts in heat pumps and furnaces are ready and waiting to install your product. You can book us for thorough maintenance checks to keep your heating system running smoothly for a long time, and your heating bills as low as possible.

1) How does a Furnace Work?

Most furnaces use one of three fuels to heat your home: 1) natural gas (the most popular), 2) oil, or 3) propane for homes without a gas line. Of course, an electric furnace doesn’t need fossil fuel, but it can be quite expensive to operate in the long run.

Your furnace operates pretty simply: it burns fuel to generate heat. The fuel gets ignited, the burning or combustion heats a metal ‘heat exchanger’, and the heat exchanger heats air that is blown over it. Finally, the heated air is blown or ‘forced’ through ducts and vents to every room in the house - which is why furnaces are ‘forced air’ systems.

We’ve included this helpful video to give you a better understanding of how a furnace works.

Though furnaces are generally safe, they are considered more dangerous than heat pumps. Why? Furnaces have the possibility of a carbon monoxide build-up, which is rare, but it can have deadly consequences. 

Even though furnaces are built to the best standards, don’t forget that your indoor unit needs regular, professional check-ups to catch small problems before they become big hazards.

2) How does a Heat Pump Work?

Heat pumps don’t generate heat like a furnace, they just transfer heat by collecting it outside and bringing it inside. In fact, they work just like an air conditioner, but in reverse. Outside, your heat pump creates a super-cold refrigerant by lowering its pressure a lot. Now the outside air is warm - in comparison(!) - and the refrigerant collects the extra heat. The refrigerant is pumped back inside, the pressure and heat are concentrated…and you have heat for your home! 

Watch this quick video to learn more about how a heat pump works.

Running an electric heat pump is incredibly energy-efficient compared to furnaces, up to 3 times as efficient! Even though electricity to run the pump is more expensive than gas, the efficiency can lead to cheaper heating bills. It’s also why there are subsidies in the U.S. now supporting heat pump installations to reduce the country’s heat energy usage (see installation costs, below). 

Is it even possible to collect heat outside when the outdoor temperature is below freezing? Yep, it is!! Technology advances have allowed standard heat pumps able to collect some heat down efficiently to freezing temperatures, and specialized heat pumps work even down to -15 ℉ (-9 ℃). 

Standard heat pumps work best at temperatures down to freezing and become less and less efficient below freezing temperatures. That means you have to consider your climate carefully when deciding to invest in a heat pump, dual fuel heat pump, or furnace, so keep on reading to get all the details!

3) What’s A Dual Fuel Heat Pump?

Your normal, air source heat pump can efficiently provide heat for a house all year long if the temperature doesn’t go below freezing too often. Below freezing you will need an auxiliary heat source to supplement the heat pump, and that’s often an electric heat kit. 

But electric heat kits are costly to operate, so they aren’t an efficient option if you have too many cold days in a year.  

That’s where dual fuel heat pumps (or hybrid systems) step up. Dual fuel heating systems are a heat pump AND furnace together. When the outside temperature is too cold for the heat pump, the furnace is switched on. On cool days, the heat pump is used. 

In other words, dual fuel systems are very efficient because they always choose the most efficient way to heat! 

You are probably asking yourself: is it worth it to have a dual fuel heat pump? Yes! This is especially true if you have an existing furnace, because converting to dual fuel requires you to just replace the air conditioner with the heat pump.  

It’s a great time to save on heat pump and dual fuel heat pump installations, so let’s dive right into a detailed look at the costs. 

4) How Do The Installation Costs of Heat Pumps, Furnaces, And Dual Fuel Heat Pumps Compare? 

Let’s break it down from the simple scenarios to the more complex ones. And remember the rebates and tax credits we’ll cover in Section C can make a huge difference in your final cost.

A) Install the heating system first time: Heat Pump vs. Furnace

Buying a new home? In most new construction, the builder takes care of installing the heating system. If your community has a natural gas line, the builder will often go with a central AC and natural gas furnace combo, which is the most common type of system. In areas without natural gas, builders typically choose a heat pump, propane, or even oil heating instead. Dual fuel systems (a heat pump paired with a furnace) are rarely installed by default, since the equipment is more expensive upfront, even though they can save money on energy costs in the long run.

Building a custom home? This is where you get more of a say in your heating system. Builders usually recommend the same go-to setups: AC and natural gas furnace where gas lines are available, and heat pumps where they aren’t. That said, if you’re interested in a dual fuel system and your builder offers it, you might want to consider the option, as it’s a smart middle ground between efficiency and reliability.

B) Replacement or Retrofit Costs

Already have a heating system in place? Things get a little more nuanced here. The cheapest and simplest route is usually just replacing what you already have. Swap out an old furnace for a new one, or upgrade your aging heat pump to a more efficient model.

Converting to a heat pump system is usually more expensive up front. Why? A heat pump costs more than just an AC unit, and on top of that, you may need extra electrical work and duct modifications to make the switch. This process is often called “electrification,” since heat pumps run entirely on electricity to both heat and cool your home.

But here’s where it gets interesting. Incentives can totally change the equation. Rebates and tax credits (more on that in the next section) can make a heat pump or dual fuel setup much more affordable than you might think.

If you’re ready to switch, you’ve got two main paths:

• Full Heat Pump Conversion: Replace both your furnace and AC with a heat pump and air handler system. This is the all-electric, cleaner option. Just keep in mind, retrofitting often means running new control wires, installing a 240v circuit, possibly upgrading your electric panel, and tweaking ductwork. All of these factors add to the initial cost.
• Dual Fuel (Hybrid) Heat Pump: Replace your existing furnace and AC with a heat pump plus furnace combo. The equipment itself usually costs more than a heat pump with an air handler. This installation usually requires fewer changes, often just running some new control wires, while still giving you flexibility and efficiency.

So, while a straightforward replacement might seem easiest, incentives often tip the scales, making dual fuel or full conversions the smarter long-term investment.

C) How to Save with Tax Credits and Rebates

The sticker price isn’t the whole story. Between federal tax credits and rebate programs, you could save thousands, plus enjoy lower utility bills for years to come.

Federal 25C Tax Credit (available in all states):

The Energy Efficient Home Improvement Credit, also called 25C, is a big one. Thanks to the Inflation Reduction Act, homeowners can claim 30% of the installation cost, up to $2,000 per year, when installing a qualifying heat pump. To qualify, the system usually needs to meet ENERGY STAR® standards, and you’ll need at least $2,000 in federal tax liability to take full advantage. 

Claiming is simple: just file it with your federal tax return. For a step-by-step breakdown, check out our full guide on the 25C tax credit.

The credit was originally designed to run through 2032, but current legislation has shortened it, making 2025 the final year to claim it under existing rules.

Federal Funding, State Implementation (HEAR & HOMES):

HEAR (Home Electrification and Appliance Rebates): Up to $8,000 off at the point of sale for qualifying heat pumps. Low-income households can get 100% covered (up to $8,000), while moderate-income households can get 50% covered (up to $8,000). High-income households aren’t eligible.

HOMES (Home Owner Managing Energy Savings): Rebates up to $8,000 based on measured energy savings (must cut energy use by at least 20%). These come after installation, not upfront.

As of May 2025, 11 HEAR programs and 5 HOMES programs are live. States offering both include D.C., Georgia, Michigan, North Carolina, and Wisconsin. HEAR is also active in AZ, CA, CO, ME, NM, NY, and RI.