What Is a Heat Pump and How Does It Work?

A conventional furnace burns gas to generate heat. An electric resistance heater converts electrical energy directly into heat. A heat pump does neither — it uses a refrigerant cycle to move heat from one place to another, the same way a refrigerator moves heat out of its interior and releases it into your kitchen.

Because moving heat requires less energy than generating it, a heat pump can deliver two to four units of heating or cooling energy for every one unit of electrical energy it consumes. This ratio is called the Coefficient of Performance (COP) in heating mode and the Energy Efficiency Ratio (EER) or Seasonal Energy Efficiency Ratio (SEER) in cooling mode. A high-efficiency heat pump running in mild weather can achieve a COP of 3 or higher — meaning it delivers three times more heat energy than the electricity it uses.

In heating mode, the heat pump's outdoor unit contains a coil filled with refrigerant at a very low temperature — cold enough that even outdoor air in winter contains more heat than the refrigerant. The refrigerant absorbs that heat and evaporates into a gas. A compressor then pressurizes the gas, which raises its temperature significantly. The hot, pressurized gas travels to the indoor coil, where it releases its heat into your home's air supply. The refrigerant then expands, cools back down, and the cycle repeats.

The outdoor unit does not need to be warmer than the indoor air to extract heat — it only needs to be warmer than the refrigerant, which is kept very cold. This is why heat pumps can extract useful heat from outdoor air even when temperatures are well below freezing.

Air-source heat pumps are the most common type. They have an outdoor unit that looks similar to a central air conditioner and an indoor air handler. They are less expensive to install than ground-source systems and work well in most climates. Modern cold-climate air-source heat pumps are rated to operate efficiently down to -13°F, making them viable in Indianapolis's winters.

Ground-source heat pumps (also called geothermal heat pumps) exchange heat with the ground rather than the air. Because ground temperature stays relatively constant year-round (typically 50°F to 55°F at depth in the Midwest), ground-source systems are highly efficient regardless of outdoor air temperature. The tradeoff is installation cost — ground-source systems require drilling or trenching to install the ground loop, which adds $10,000 to $20,000 or more to the upfront cost. They are a strong long-term investment for homeowners planning to stay in place for many years.

In climates like Indianapolis's, where winter temperatures regularly drop below 20°F, a dual-fuel system is often the most cost-effective approach. A dual-fuel system pairs an air-source heat pump with a gas furnace. The heat pump handles heating and cooling during mild weather — when it operates most efficiently — and the gas furnace takes over on the coldest days, when burning gas is more economical than running the heat pump against very low outdoor temperatures.

The switchover point (called the balance point) is typically set between 25°F and 35°F depending on local gas and electricity prices. A properly configured dual-fuel system gives you the efficiency of a heat pump for most of the year and the reliable heating capacity of a gas furnace when you need it most.

A ductless mini-split is a type of air-source heat pump that does not require ductwork. An outdoor compressor unit connects to one or more indoor air handlers mounted on the wall or ceiling of individual rooms. Each indoor unit can be controlled independently, allowing different temperatures in different zones.

Mini-splits are well suited for additions, finished basements, detached garages, or any space where running ductwork is impractical or expensive. They are also a strong option for whole-home conditioning in homes without existing ductwork. Because there is no duct system to lose energy through, mini-splits can be significantly more efficient than ducted systems in the right application.

Heat pumps make the most financial sense when you are replacing both a furnace and an air conditioner at the same time, when your home has good insulation and air sealing, and when electricity rates in your area are reasonable relative to gas prices. In Indianapolis, the combination of a cold-climate heat pump with a gas backup (dual-fuel) is often the most efficient and cost-effective configuration.

If your home currently has a gas furnace and a separate central air conditioner, and both are nearing the end of their useful life, a heat pump replacement is worth getting a quote on alongside a traditional furnace-and-AC replacement. The upfront cost difference has narrowed significantly in recent years, and federal tax credits of up to $2,000 are available for qualifying heat pump installations under the Inflation Reduction Act.