A heat exchanger is mounted external to a section of flue pipe or is an integral part of a section of flue pipe. The heat exchanger preheats a domestic hot water supply and boosts the return water temperature prior to reentry to the furnace coil. The heat exchanger reduces fuel use, pollution and wear of the furnace and burner. A typical heat exchanger installation includes an oil or gas burner located on a furnace or boiler having a flue pipe leading to a gaseous outlet, such as a masonry chimney. A short vertical flue section leads to a draft-regulating damper. The flue heat exchanger may be a coil of tubing wrapped around flue section, such that the tubing picks up heat from the heated flue gasses. Preheated water exits from the heat exchanger.