How Does A Tankless Water Heater Work? (A Practical Guide)

Kenneth Wilson

In essence, tankless water heaters follow a different process than their tanked counterparts. Instead of heating the water 24/7, a tankless water heater is generally OFF until the system signals the need for the heated water. 

The cold water passes through the aluminum heat exchanger to heat the water. Once it is shut off, the system will be on standby mode.

Average Costs of Tankless Heaters


On average, tankless water heater prices range between $250 (small gas-powered units) and up to $2,300 (high output heaters). Electric units will cost you anywhere from $120 to $950. (Related: Gas vs. Electric Water Heater: What Is Right For Your Home?)

Although tankless heaters will cost you more than standard storage tank heaters– they are increasingly gaining traction because of their efficiency. So even if you pay high upfront costs, you can still recoup the amount and save money in the long run with your decreased energy bills. (Related: Tankless Water Heaters: Advantages, Disadvantages & Costs)

How a Tankless Heater Works


Let’s dive into a step-by-step breakdown of how a tankless heater works.

  • Demand for hot water – The first step involves giving the signal for hot water demand, which starts once the knob is turned on. For dual knob units, simply turn the hot water knob.
  • Water flows into the heater – After the hot water knob is turned on, the cold water will gradually flow through the sensors that trigger the system to start the water heating process. This is a stark contrast to regular water heaters, where hot water travels through the pipes from the tank.
  • The sensor detects the water flow and ignites the burner – Once the internal system has been activated, it will automatically calculate the temperature of the burners to provide heated water at the right temperature. This is the same for both gas and electric powered units. Tankless heaters offer a constant supply of hot water, minus waiting for your tank to fill back up.
  • Water circulates the heat exchanger – Once the internal computer ignites the burner, the water heating process begins! The water circulates the heat exchanger to achieve its set temperature. Afterward, the hot water makes its way outside the system and flows through the pipes until it reaches its destination.
  • Automatic shut down – With a tankless water heater giving you an endless stream of readily available hot water, you’ll be surprised at how efficient it is once the demand stops. Once the system detects you no longer need hot water on-demand, it will automatically power off and conserve energy. In the long run, you’ll benefit from its energy savings.

Why Choose Tankless Heaters?


If you would like to have a constant flow of hot water, consistently achieve your desired hot water temperature for maximum comfort and want your system to have personalized settings; then, switching to a tankless heater will be a good decision. (If you’re still stuck with the standard tank unit, that is!)

  • Consistent flow of hot water (2 to 5 gallons per minute): A tankless water heater can supply your home’s hot water needs at about 2 to 5 gallons per minute. In contrast, standard tank heaters can only supply you with heated water until the tank’s emptied .One thing to keep in mind: some gas-powered tankless heaters may also provide you with more water flow than their electric counterparts.
  • Panel adjustment to achieve your set temperature setting: The panel will adjust your gas valve, mixing valve, and water flow to provide you with heated water at your desired temperature in a tankless heater. Most tankless water heaters come with a front-facing panel to help you control the settings seamlessly. For electric tankless heaters, the panels can also adjust the amount of electricity it uses. This feature allows you to manage your utility bills.
  • Personalized settings: Additionally, the panel also allows for personalized settings to combine values and the water flow amount. During the installation of your tankless heater, it’s ideal that you discuss your preferences with your plumber or technician so they can set your desired settings accordingly.

Common Issues Observed in Tankless Water Heaters


Although tankless water heaters are growing more popular because of their efficiency, they also have a fair share of issues. This includes blockages, ignition failure, and a system overload.

Also, if you are using too many hot water applications at a given time (beyond the system capacity) – the unit may overload and shut down. If the air supply of the tankless heater is blocked in any way, overload may become an issue too.

Lastly, you may also find yourself in situations where the tankless heater cannot ignite. This is primarily due to gas supply-related issues. In that case, you may want to ensure both your gas and water valves are not fully open. 

If all things fail, you may want to contact a local technician to check on the system and give you professional advice.

Should You Switch to a Tankless Water Heater?


Ultimately, you can enjoy an endless flow of hot water on demand with a tankless water heater. Suppose that’s something you’d want in your home. In that case, making the switch will be beneficial– especially now that you have a basic understanding of how a tankless heater system works.

Not to mention, you can also expect cost savings in the long run as it is more energy-efficient than a tanked unit.

Frequently Asked Questions (FAQs)


What are the advantages of a tankless water heater?

Tankless water heater only turns on when a hot water faucet is opened and turns off when closed. Therefore, the energy is consumed only for the hot water being used. You are not spending energy heating water when you are not using it, such as while asleep or not at home. Since there is no water storage, it means no continual heating and reheating of stored water. The energy you save is then converted to money savings while reducing detrimental impacts on the environment. Because a tankless water heater heats the water as you use it, you may have an infinite supply of hot water as long as you select the right unit size for your home needs.

Is one tankless water heater enough for a whole house?

Yes, a single tankless water heater may be enough as long as you choose the suitable model suited to your home’s hot water needs. This will also depend on the maximum flow of hot water necessary at any one time. You can purchase tankless water heaters that can handle one shower at a time, while others can handle up to two showers simultaneously.

How much money can I save if I use a tankless water heater?

On average, you can save anywhere from 5% to 69% off your hot water heating bill. Remember that factors like the model of your tankless water heater, storage tank size, and if it runs on electricity or gas can determine how much you will save. Most houses use hot water for only an hour on average, but they maintain 40 or 50 gallons (sometimes more) of hot water 24 hours a day. Your energy consumption can be dramatically reduced by having a system that eliminates the storage and heats the water only when needed.

How do I select the right tankless water heater size?

You must select a model that can supply enough hot water to fulfill your hot water needs. The best way to pick the right size is to figure out how many showers each model can handle simultaneously. As previously mentioned, many models can run either one or two showers at a given time. (Related: What Size Tankless Water Heater Do I Need? (A Comprehensive Guide))

Kenneth Wilson
February 26, 2022
Contractor Tips, Interior

Kenneth Wilson

Retired contractor. Currently residing in Southwest Florida. Now in semi-retirement, I write and manage this blog focused on helping home owners make savvy decisions when it comes to finding contractors and getting their projects done. I also operate remodeling design service for homeowners.

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