When does it make sense to upgrade to a heat pump?

Here is the answer to this week’s reader question about replacing a furnace and air conditioner with a heat pump.

Should I invest in a heat pump in Toronto before my old furnace and AC eventually break down? I’m approaching 80, with close to three years left to pay off my mortgage. I’d be using my HELOC to pay for these expenses, minus any eligible rebates.

–Kathy

Is a heat pump worth it?

The most important thing is understanding where you are financially at the moment. You’re 80 years old, paying down a mortgage, most likely on a fixed income, and you’ve said that if you do this upgrade you’ll be using a home equity line of credit (HELOC). We would say you don’t have the capacity for financial risk, and taking on additional debt with interest at this time in your life would be a very large decision.

The decision is not necessarily no: You may still opt to do it, but you should consider how this will affect your total financial picture. The most urgent thing for me as a planner would be to pay off your mortgage as quickly as possible. Once that mortgage is paid off, that monthly cost could be allocated toward a furnace upgrade.

Will a heat pump save you money? How much does it cost?

Based on your situation, it looks like an upgrade like that could save you around $100 per month in energy costs. The range for your new heat pump install is probably anywhere from $6,000 to $15,000, and the rebates you’ll likely qualify for in Toronto right now are only around $2,000. It’s hard to justify saving $100 a month by spending $15,000 to do the upgrade. Even being optimistic, with a cost of $6,000 and earning $100 a month back in savings, it would take 60 months just to earn back the cost, not taking into account the interest.

Clients come to me and say, “I really want to do this thing that’s going to cost that much.” And I say, “Wonderful, I want you to have joy in your life, but can you afford it? And will this create a detrimental situation for you later?”

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Should you use credit to buy a heat pump?

Let’s assume you don’t have any meaningful savings. If you borrow $15,000, you’re going to have a HELOC with payments of $500 to $600 a month. That can have a meaningful impact on your lifestyle, even with the savings on energy costs.

Do you really need a heat pump?

If your furnace and AC are at the end of their service life, you may need to replace them regardless. And if environmental considerations are really important to you—if making those changes are going to make you feel good about your home and the small part you’re playing in the climate crisis—then why not?

Environmentally speaking, it’s probably a great upgrade. If someone has the financial capacity to make that switch, you could be reducing your emissions by up to 90% depending on where you live. So it has a very positive environmental impact.

But I wouldn’t want to see someone who’s maybe in a delicate financial situation and has a perfectly working system think that “Oh, I’ll save $100 a month by spending $15,000.” That math doesn’t really check out.

Read more from this issue of The Get:

1. Boomerang kids in Canada: why they never move out 
2. Does bankruptcy or a consumer proposal ruin your credit in Canada?
3. Chef Mary Berg on how to slash your food bill–and still make a damn-good dinner
4. How to write a Facebook Marketplace listing that actually sells your stuff