How Does A Tankless Water Heater Work?

Ever wondered how a tankless water heater works? We’ll reveal how.

Ever looked at a tankless water heater and wondered how such a compact machine could produce so much hot water? Or are you contemplating whether to go tankless or stick to a regular tank-type boiler? Today we’ll reveal how a tankless water heater works to help you decide.

Tankless water heaters are highly efficient when it comes to heating water. But, to know if one is right for you, it’s essential to know how they work. Get it wrong, and you could end up wasting tonnes of water.

How Does a Tankless Water Heater Work?

Tankless water heaters work a bit different from regular tank-type units. With a traditional system, the heater consists of a tank and a heating method. These come in different sizes depending on how many gallons they can hold.

The water enters the tank and is heated by either electric elements or a gas-fired burner. The tank will continuously heat the water inside so you’ll always have hot water when you need it. However, this results in something called “standby heat loss.”

The water heater wastes energy heating water that goes unused (1). On the other hand, tankless units work in a way that eliminates standby heat loss. Instead of heating and storing gallons upon gallons of water, the tankless heats on demand.

Because there’s no tank, the cold water enters the unit through pipes, is heated, and exits hot. This is also why they’re often referred to as “on-demand” water heaters.

To produce hot water, the tankless is fitted with something called a heat exchanger. This is a powerful device that transfers heat from the fuel source to the water. Similar to a tank-type heater, a tankless generates heat through either a gas-fired burner or electric coils.

But the heat exchanger isn’t on all the time. It only activates when it senses sufficient water pressure. Some tankless require a large pressure where others can do with very little (2).

When the heat exchanger senses the appropriate water pressure, it begins to heat the water as it passes through. Then, it continues to heat the water to the exact preset temperature until you turn off the faucet.

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How Different Tankless Systems Work

In the world of tankless water heaters, there are two general systems. These are whole-house such as the Rinnai RUC98iN and point-of-use like the EcoSmart ECO 27. These systems meet two totally different requirements so it’s crucial to know the difference.

Whole-house units are large and powerful. They provide a sufficient amount of hot water for multiple outlets. These are generally powered by natural gas or propane.

One issue, however, that you often find with whole-house units is that they suffer from lag time. Lag time is the time it takes the hot water to travel from the heater to your faucet. If your home is large, the lag time is significantly longer which wastes water.

Point-of-use, on the other hand, works for one, maybe two outlets. These units are compact and designed to be installed right where you need them, for example, under your sink. This reduces the lag time as the heated water doesn’t travel far.

Point-of-use water heaters are typically powered by electricity. This also makes the installation a lot easier as there are no exhaust and venting considerations.

What to Expect From Tankless Water Heaters

With an average tankless water heater, you can expect a flow rate of two to five gallons per minute (3). Of course, this depends on your unit and how large it is. But it also depends on the power source.

Gas-powered water heaters generally deliver a higher flow of hot water than electric ones. Even the most powerful gas-fired unit, however, will struggle to provide a decent flow for simultaneous use in large homes. For example, taking a shower while running the dishwasher could stretch its limitations.

Fortunately, there’s one bulletproof solution and that is to install additional units to support your original one. Some models can be connected together to facilitate a higher demand for hot water. Or, you can simply install separate ones for individual appliances.

Benefits and Drawbacks

Although we’ve already mentioned a few advantages and disadvantages, we thought it would be good to dig a bit deeper. Especially since tankless water heaters aren’t for everyone. Let’s start with the good points.


  • Efficiency: A tankless can be 8 to 34 percent more efficient compared to traditional units (4).
  • Instant hot water: With tankless water heaters, the water heats on demand. This eliminates long waiting times and standby heat loss.
  • Longer service life: A traditional tank-type unit may last a decade. In comparison, a tankless can last twice as long. This is because they’re not exposed to the same corrosive nature of hot water (5).
  • Space-saving design: Some models are as small as a laptop. But even the largest tankless boiler is compact and relatively easy to fit into small spaces.
  • Endless hot water: Because a tankless doesn’t work around a tank, it can supply endless hot water for consecutive use.
  • Longer warranties: Since tankless water heaters generally have a longer expected lifespan, their warranties are often longer. Some manufacturers offer warranties of 20 years, others even longer.


  • High initial cost: Tankless water heaters typically have a higher initial cost than traditional units. They can also rack up a significant installation bill. That said, they can save on your monthly utility bill.
  • Limited hot water: Although it can provide endless hot water, a tankless isn’t ideal for simultaneous use. So, if you plan on running two or more appliances simultaneously, be ready for some lukewarm to cold water.
  • Requires additional equipment: Although not always the case, most tankless require you to buy extra equipment such as a water softener.
  • Difficult to install: Again, it’s not always the case. If you don’t have pipes and vents already though, it may be. Some re-routing of pipes to install your new tankless may be required.
  • Not the only way to become efficient: Tankless water heaters are expensive to buy, and can prove unnecessary. Sometimes, all you need are a few changes to your hot water habits to become more efficient.
  • Requires more maintenance: Tankless water heaters require more maintenance especially if you have hard water. You can expect to flush it at least once a year to every two years.

Ready to Go Tankless?

Tankless water heaters work on demand — delivering hot water as you need it. They don’t store water in a tank like a traditional unit and therefore eliminate the risk of standby heat loss. Instead, they heat the water as it circulates through the fitted heat exchanger.

Going tankless isn’t for everyone. If you have a large household that often runs hot water outlets simultaneously, the tankless might not be sufficient. Fortunately, if you decide they’re for you, you can combat this by installing another unit as a point-of-use.

Do you think a tankless water heater is what you need? We’d like to read your answer below or any further questions.

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About the Author

Peter Gray

Peter has been a homeowner for 35+ years and has always done his own repair and improvement tasks. As a retired plumber, Peter now spends his time teaching others how they can fix leaks, replace faucets, and make home improvements on a budget.