What is a heat pump? How it works and whether it fits your home

If your furnace and air conditioner are near the end of their lives, a heat pump may be the one system that replaces both. Heat pumps can heat and cool a home with one system and typically cost less to run than electric furnaces and baseboard heaters, propane, or oil.

What is a heat pump and how does it work?

A heat pump is an electric system that heats and cools your home by moving heat instead of generating it. In summer, it pulls heat out of your house and releases it outdoors, like an air conditioner. In winter, it runs in reverse and pulls heat from outdoor air into your home, even at really low temperatures.

Moving heat takes less energy than making it, which is why heat pumps are an efficient alternative to furnaces and air conditioners. 

Read more for a detailed breakdown: How a heat pump works 

Can a heat pump save me money?

Often, and it depends mostly on what you heat with now. If you have electric resistance heat, DOE says a heat pump can cut heating electricity use by up to 75%. For homes that heat with electricity, oil, or propane and already have air conditioning, a 2024 National Laboratory of the Rockies (NLR) study found median bill savings of $300 to $650 a year, depending on heat pump efficiency.

Natural gas is the harder case. Gas is often cheaper than electricity, so savings can be small or absent. The same study found that millions of homes that heat with gas would lower their energy bills if they switched to a heat pump.

Will a heat pump work in my climate?

Yes. DOE says heat pumps are an alternative to furnaces and air conditioners for all climates. Older air-source models couldn’t provide enough heat in deep cold, but newer cold climate heat pumps maintain efficiency down to 5°F and lower.

Some cold-climate systems add electric backup heat for the coldest days which costs more to run. Ask your installer how often it would turn on where you live.

Different types of heat pumps

Some heat pumps use ducts, others don’t. Some exchange heat with the outside air while others exchange with the ground.

• Central (ducted) air-source: Uses your ductwork to heat and cool the whole house. It is the most common type.
• Mini-split (ductless) air-source: Puts small units in individual rooms, so it suits homes without ducts.
• Geothermal (ground-source): Trades heat with the ground. Geothermal heat pumps can cost much more to install but deliver much lower electric bills.

Paying for a heat pump

Installed prices for a central air-source heat pump vary widely depending on type, size, and any additional electrical work required. According to our survey of online estimates, total heat pump cost can run from $4,000 for the most basic system up to $25,000. Compare any quote with the cost of a new furnace plus air conditioner, since a heat pump replaces both.

Palmetto offers Comfort Plan, an HVAC lease with $0 upfront cost and a predictable monthly payment over a 10 or 12 year term. Expert HVAC sizing, installation, maintenance, and common repairs are included. Flexible end of term options, including a 25% renewal credit toward a new system, apply. 

Read more: Heat pump leasing guide

Questions to bring to any installer:

• How did you size this system for my home?
• Do I need duct, electrical, or insulation work, and what will it cost?
• What are the SEER2 and HSPF2 ratings? (Industry standard cooling and heating efficiency scores)
• What does the warranty cover, and who handles service?

Learn more about your HVAC options with Palmetto, including how Comfort Plan could fit your home.

Frequently asked heat pump questions

What is the downside of a heat pump?

The main tradeoffs are price and fit. It can cost more upfront than a basic furnace and AC swap, savings may be small if you replace natural gas. Like any HVAC system, you get a better experience if it’s sized and installed well.

Is a heat pump the same as an air conditioner?

No. In cooling mode, a heat pump works like a regular air conditioner, but it can also run in reverse to heat your home. That’s why a heat pump can replace an air conditioner and a furnace.

Will I have high electric bills with a heat pump?

Not necessarily. Replacing electric resistance heat can lower your electric bill. Replacing gas, propane, or oil will raise it, but your fuel bill will fall or disappear. That’s why you need to compare total energy cost.

How long does a heat pump last?

How long a heat pump lasts depends on type, climate, and maintenance. DOE says geothermal indoor equipment lasts up to 24 years and the ground loop 50 or more. For air-source units, ask for the expected service life and compare it with the warranty, but common estimates put their lifespan at 15-20 years.

Disclaimer: This content is for educational purposes only. Palmetto does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.