A tankless water heater, sometimes called an on-demand water heater, heats water only when you need it. Unlike a traditional water heater that stores and continuously heats a large tank of water, a tankless system has no storage tank.

When you turn on a hot-water faucet, cold water flows through the tankless heater. A powerful gas burner or electric heating element quickly heats the water as it passes through the unit and sends hot water directly to your faucet, shower, or appliance.

Because the water is heated on demand, the system does not have to continually keep a large tank of water hot. This can provide several advantages, including energy savings, a smaller equipment footprint, and a virtually continuous supply of hot water.

Both tankless and traditional tank-style water heaters can provide reliable hot water for your home. The right choice depends on your home's size, hot-water demand, available space, fuel source, budget, and existing plumbing and electrical systems.

Here are some of the primary advantages and disadvantages of switching to a tankless water heater.

One of the biggest benefits of a tankless water heater is that you don't have to wait for a storage tank to refill and reheat.

A traditional water heater has a limited amount of hot water available at any given time. If several people take long showers, run the dishwasher, and use other hot-water appliances at the same time, the tank can eventually run out of hot water.

A properly sized tankless system can continue heating water as long as there is sufficient water flow and the unit has the capacity to meet the demand.

This makes tankless systems especially attractive for larger families or homes where hot-water demand is high.

Traditional water heaters continuously use energy to keep the water in their storage tank hot, even when nobody is using hot water. This is known as standby heat loss.

Tankless water heaters eliminate most of this standby loss because they only heat water when there is a demand for hot water.

Depending on the home's usage and the equipment selected, this can make a tankless system more energy efficient than a conventional storage-tank heater.

Traditional water heaters can take up a significant amount of floor space.

Tankless water heaters are much smaller and can often be mounted on a wall. This can free up valuable space in a utility room, garage, closet, basement, or mechanical room.

For homeowners looking to maximize usable space, this can be a major advantage.

Tankless water heaters can have a longer service life than conventional tank-style water heaters when properly installed and maintained.

A traditional water heater has a large tank that is constantly exposed to heated water. Over time, corrosion and mineral buildup can contribute to tank failure and eventually cause leaks.

Tankless units do not have a large storage tank that can rupture and flood an area.

One of the most frustrating water-heater failures is a leaking or ruptured storage tank.

When a traditional water heater fails, hundreds of gallons of water may potentially be released into the surrounding area.

A tankless water heater does not store a large volume of water inside a tank, significantly reducing the risk of this type of catastrophic tank failure.

Because tankless systems are compact and wall-mounted, they can sometimes be installed in locations where a traditional water heater would be difficult or impossible to fit.

Depending on the model and installation requirements, tankless water heaters may also allow homeowners to reclaim valuable storage or floor space.

Tankless water heaters are not automatically the best choice for every home. They have several disadvantages that should be considered before making the switch.

The initial cost of purchasing and installing a tankless water heater is usually higher than replacing a traditional tank-style water heater with another tank-style unit.

The difference can be especially significant when converting from a traditional system to a tankless system because the home may require additional work.

Depending on the existing system, installation may require:

• New water connections
• Gas piping upgrades
• New or modified venting
• Electrical modifications
• New isolation valves
• Condensate drainage
• Additional plumbing work
• Removal and disposal of the existing water heater
• Changes to the installation location

The exact requirements depend on the type of tankless water heater selected and the home's existing infrastructure.

Tankless water heaters can provide continuous hot water, but they do have a maximum flow rate.

A unit can only heat a certain amount of water at one time. If the household attempts to run multiple high-demand fixtures simultaneously, the system may not be able to provide the same temperature at every fixture.

For example, a home might be using:

• Two showers
• A bathtub
• A dishwasher
• A washing machine

all at the same time.

A properly sized system is critical. In some homes, multiple tankless units may be necessary to meet the demand.

Tankless water heaters can have significant energy requirements.

Gas-fired units may require larger gas piping or modifications to the venting system. Electric tankless systems can require substantial electrical capacity and may require new circuits, a larger electrical panel, or a service upgrade depending on the home's existing electrical system.

This is one of the most important things to evaluate before choosing a tankless water heater.

Tankless water heaters should be maintained regularly, particularly in areas with hard water.

Mineral deposits can build up inside the heat exchanger and reduce performance or damage the equipment over time.

Periodic flushing and descaling can help maintain proper operation and efficiency.

A tankless water heater begins heating water when a fixture calls for hot water, but the hot water still has to travel through the home's plumbing system.

As a result, there may be a short wait before hot water reaches a distant faucet.

This isn't necessarily unique to tankless systems—the distance between the water heater and fixture affects hot-water delivery in any system—but homeowners sometimes expect tankless water heaters to provide instant hot water everywhere in the home.

A dedicated hot-water re-circulation system can be used in some installations to reduce waiting time.

Feature                                         Tankless Water Heater                                         Traditional Tank Water Heater                           

Hot Water Supply           Continuous while properly sized and supplied       Limited by tank capacity

Energy Use                       Generally more efficient because there                      Uses energy to maintain tank 

                                              is little standby loss                                                              temperature

Upfront Cost                     Higher                                                                                       Lower

Space Required              Compact, wall-mounted                                                   Larger floor-mounted tank

Risk of Tank Rupture   No large storage tank                                                        Tank can eventually leak or

                                                                                                                                                   fail

Equipment Life               Generally longer                                                                  Generally shorter

Maintenance                      Periodic flushing/descaling may                               Periodic maintenance

                                                 be needed                                                                            recommended

Multiple Fixtures              Limited by unit flow rate                                                Limited by tank capacity

Installation                         Can be more complicated                                              Usually simpler

Best For                              Homes seeking efficiency, space savings,                Homes wanting a lower-cost,

                                               and continuous hot water                                               straightforward installation

A tankless water heater can be an excellent investment, but the right system depends on more than simply replacing one water heater with another.

Before recommending a tankless system, a professional should evaluate your home's hot-water demand, plumbing configuration, gas supply, electrical capacity, venting requirements, water quality, and available installation space.

The correct size is also extremely important. A unit that is too small may struggle to provide adequate hot water when multiple fixtures are operating at the same time.

For some homes, a tankless water heater is an excellent upgrade. For others, a high-quality traditional tank water heater may provide a better combination of installation cost, performance, and simplicity.