Tankless Water Heater Explained: What It Is and How It Works

Components and stages that matter to a buyer

Understanding the specific components of a tankless water heater helps determine how the unit will perform in your specific home environment.

If you are confused by technical jargon, see how tankless water heater terms and specs are explained in simple language.

The Heat Exchanger

The heat exchanger is the core component where the actual heat transfer occurs. The material of this component—often copper or stainless steel—determines the unit’s durability and how efficiently it can move heat into the water stream. A high-quality heat exchanger ensures that the unit can handle high flow rates without losing efficiency.

Flow Rate and GPM

Flow rate is measured in gallons per minute (GPM) and dictates how much water the unit can heat simultaneously. If you need to run a shower and a dishwasher at the same time, you must ensure the unit’s GPM rating can support both. A common mistake is choosing a unit with a flow rate that is too low for the number of fixtures in the home, which results in a drop in temperature when multiple taps are open.

BTU Rating and Heating Capacity

The British Thermal Unit (BTU) rating measures the heating power of the unit. This value determines how much the temperature can rise over a specific distance of pipe. In very cold climates, a higher BTU rating is necessary to compensate for the energy lost as water travels from the unit to the faucet. If the BTU rating is insufficient for the climate, the water may arrive at the showerhead lukewarm.

Venting Requirements

Venting refers to how the unit exhausts combustion byproducts. Depending on whether the unit is a condensing or non-condensing model, the venting requirements change significantly. Condensing units often require specific piping to handle acidic condensate, while non-condensing units require standard venting paths to move exhaust gases safely outside the home.

How does a tankless water heater change daily use?

Having a tankless water heater changes the experience of using hot water by providing a consistent temperature and an endless supply. In a standard home, this means you never have to worry about the water turning cold during a long shower. Because the unit only works when you need it, it also reduces the amount of “standby” heat lost by a large tank sitting in a garage or closet.

The difference is most noticeable in households with high hot water demand. For example, if you have a large family where multiple people are bathing at different times, a tankless system ensures that the last person in the shower gets the same temperature as the first. However, the difference is less noticeable in a small apartment where only one person uses hot water at a time; in that scenario, the primary benefit is the space saved by not having a large tank installed.

Who needs a tankless water heater?

A tankless water heater is suitable for households that prioritize space efficiency and demand a continuous supply of hot water. It is an ideal choice for homes with limited storage space, such as apartments or small houses, where a traditional tank would be difficult to house.

It is also the preferred choice for large households or homes with high-demand fixtures, such as large soaking tubs or multiple simultaneous showers. Conversely, a tankless unit may not be necessary for a single-person household with low hot water usage, where the lower upfront cost of a traditional storage tank might be more practical. Before purchasing, you must confirm your local plumbing codes and ensure your gas line or electrical service can support the specific BTU or amperage requirements of the unit.

Reviewed by the Green Writer editorial team. Green Writer writes these guides from the 49 most-reviewed tankless water heater installation listings in our retail dataset, not from manufacturer copy.