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Should I Upgrade My Furnace and Water Heater?

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Sometimes, I ask a question and I have a good hunch of what the right answer is going to be. Today's article is not a such a case. As I write this article, I don't know where it will go. That's very different from most of my articles.

In my last article, I wrote about how I got a recently energy assessment. One of the things I learned is that we have a 24-year old furnace.

I had been told that the furnace was old before, but it was so clean (perhaps because it is a natural gas furnace), I thought that the company might have been trying to snow me on buying a new system that I didn't need. It turns out they were right.

While the furnace works fine, it is in only about 60% efficient according to the estimates. There are systems that are 95% efficient today. So it would seem like nearly a third of my heating bill could be avoided by replacing the furnace. It's probably a little less since we use gas for cooking and laundry.

Looking at my average bill, that's a savings of around $45/mo. It may not seem like much, but that's like getting free HBO, free Netflix, and a still having money left over for a monthly pizza.

Right next to the furnace is the water heater. It looks much newer, but the estimate is that it is just about as efficient (or inefficient) as our furnace. Now that I think about it, we use gas for the water heater, so to save the full $45 a month, we'd probably have to replace both.

And that's where the question comes in. If you've got working equipment, is it worth replacing it to make it more efficient? The answer would require an estimate for the cost of the new equipment. Unfortunately that's not something I've had the time to look into.

While we could replace the older furnace and not the water heater, I've heard there are combined systems that might be cheaper. Perhaps, just as important as saving money, would be saving space. As the kids grow, I think finishing the basement is going to look more and more attractive. That's going to go a lot smoother if we don't have big water heaters taking up all the room.

If I had to estimate how much the new heating systems would cost, I'd go with $15,000. That seems like a lot of money to spend to save a little more than $500 a year in more efficient fuel usage, right? Part of it is that the cost of natural gas is low enough that even being inefficient isn't a huge deal.

The wild card in all this is the energy company has some incentives, like rebates and interest-free loans to spread the cost over several years. That's definitely something to look into, but I'm expecting that the savings won't cover the cost.

The situation reminds me of one where you have a car that isn't fuel efficient. It's rarely worth it to scrap a working car. Instead, the most cost-effective thing to do is drive it into the ground. That's my hunch here.

Readers, what do you think?

Posted on November 20, 2014.

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13 Responses to “Should I Upgrade My Furnace and Water Heater?”

  1. Kathy says:

    I think one question to answer is how many years of life does the a qualified service technician think is left in the furnace? Does he think it will last another full heating season. What you don’t want to happen is for it to quit working in the middle of a polar vortex like we’ve had already this year (at least in my part of the U.S.) I trust a service technician more than an inspector from the utility company or even a home inspector used when a house is being sold. $15,000 seems high on replacing the furnace since you shouldn’t have to replace the ductwork etc. The water heater should be under $1000. You could start by replacing that and waiting a season or two on the furnace.

  2. robyn says:

    back in 1997 or 1998, our gas water heater went [usual life on a water heater is 8 to 10 years, our lasted 14]. no hot water upstairs, a flood in the basement. the service guy, whom i knew and had used for plumbing work for years, commented that our oil heating system was on it’s last legs and we should consider switching to gas. our gas company had a promotion covered either the system or the install. saved a lost of space in the basement, a lot of money on our heating bills. cost for the water heater and install was about $350 [we had a 50 gal, an 80 would be more] the furnace job was about $3500 or so.

  3. Money Beagle says:

    Good question. You’ll have to repair it eventually, it’s just a matter of whether you do it now or when it fails. I think it comes down to whether you have the cash set aside and available for such a thing. If you do, then it makes sense to start realizing the savings now, but if you don’t, you might want to wait, especially if getting it might mean you’d have to finance it in some way, which could mean having to pay more in interest than you’ll be saving.

  4. We replaced our furnace and air conditioner at our last house. I think it was even more efficient than 95%… We had a 1200 sq. ft. (if that) bungalow, so it was the smallest sized units. They also had to remove the old oil tank for us. The total for the job was about $10,000 (we got half back through rebates and credits, it was a very special year up here).

    We have a 15 year old furnace, 25+ year air conditioner and a 7 year electric hot water tank, so we’ll be looking more into this soon too. We’d also be looking at alternative hot water tanks, because it looks like different designs are coming out all the time.

  5. We went through the same calculation last year. Our 30 year old boiler is 78% efficient and in decent condition.

    After taking into account all of the rebates and incentives… it just didn’t make financial sense to junk a perfectly working boiler. And while it would be a pain for it to stop working in the dead of winter, we could heat with space heaters for a couple of days while getting a replacement installed.

    Now, there’s a confounding factor here too: Chimneys. If your existing furnace is atmospherically vented up an older chimney (most are) then you also need to take into account the condition of the chimney. Ours is borderline, and the chimney sweep recommended a liner and repointing above the roof line in the next couple of years.

    Many new boilers and furnaces (and hot water heaters) are vented through the wall with PVC vent pipe and don’t use the chimney. This means by getting new heating equipment you’d also avoid spending $$$ on chimney repairs (that will be useless as soon as the old heating equipment fails).

    That’s probably our plan. Once the chimney becomes critical, we’ll swap our boiler and HW heater and just cap the chimney. Ideally we’ll do this in early-summer, when HVAC guys are less busy. I’m also considering buying the actual boiler and HW myself online, and just paying a pro to install it. From what I can tell, the markup is substantial when you buy it from the installer.

    Anyway, great post. Something I think a lot of folks are thinking about these days!

  6. Martin says:

    I am in the same boat as you. Have a furnace that is not very efficient but works. To replace with a new gas furnace would run me $3,000 plus the gas connection as it is currently electric, which is least efficient.

    As for water heater, I replaced it this summer for the GE Heat Pump which is as efficient as can get. It is larger but I saw our bill go down as a result. Its upfront cost is higher but our utility provided $500 rebate making it only about $100 more than conventional water heater.

  7. We have a fancy new furnace and one thing I hate about it is that you can’t repair it yourself. We had an issue last year and it just kept shutting itself down. After $200 on an emergency technician we learned that the water line was just plugged. Why not just have a display that says that then?!?! If your old furnace works then I say keep it!

  8. Tommy Z says:

    If it ain’t broke, don’t fix it. While your older equipment may be less efficient, it probably has a better build quality.

    I had a furnace that was old and inefficient, but it worked. I replaced it anyway for a newer more efficient one shortly after moving into the house I recently purchased. As a result, I do not have a lot of “before” data to compare it to the “after” data, but my gut feeling is that I did not save the money on my energy bill that I thought I should have saved. Interestingly enough, the new furnace broke down 3 years later. While the part was covered under warranty (just barely), the labor was not.

  9. Lazy Man says:

    I want to thank everyone for the advice here. It sounds like the best thing to do would be: Do nothing. Who knew that being Lazy would be the answer?

    I grossly over-estimated the cost in the article. I was thinking about a condo property that needs heating and A/C units. That’s going to be around $7500 and it is half the size of ours. A water heater is a much cheaper thing than A/C, so the costs would probably be closer to $7-8K. That’s a huge difference.

    We don’t vent through the chimney, so we don’t have the problem that Mr. Frugalwoods mentioned. We also have a minisplit ductless system that can provide us heating in an emergency. Good point that Tommy Z that things seem to be made cheaper nowadays. I found that out with a water heater a few years ago. The repairman said that they are built to fail every ten years or so now.

    As for the suggestion of repairing one (the water heater) and not the other, I’m going to respectively decline that. I think it makes sense to get a combined system in the future and this would prevent that or put me in a situation of throwing away a relatively new water heater.

  10. 1MansMoney says:

    Timely post. We just replaced our HVAC in September for ~$7K. We had a 30 year old, inefficient system that contributed to our last SDG&E bill of $650. We ended up going with a 95% efficiency furnace and a 13 SEER A/C. With the colder weather, we won’t know the true savings for many months, but our SDG&E this past month as only $220.

  11. Priti says:

    Hi, I have recently moved to San Diego. It’s completely new place for me. Can anyone help me with below:

    1. Which is best condensing water heater suitable for this region?
    2. Should I place my water heater next to furnace?
    3. Should I have a common vent ?
    4. what should be vent material ?

    Thanks

  12. Aiden says:

    For the sake of saving money and energy, it is a really good idea to have your water heater and furnace inspected. Efficiency and energy conservation depend largely on the type and age of the furnace as well as other factors in your home (like insulation). I, personally, prefer to live in a slightly cooler environment than most, so I don’t have to worry about replacing the heating system yet.

  13. Lazy Man says:

    Thanks for the comment Priti. Unfortunately, I don’t know much about water heaters or San Diego.

    Maybe subscribe to Angie’s List and get a reputable specialist to come answer your questions?

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