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Home » Water Heaters » How Does a Tankless Water Heater Work?

How Does a Tankless Water Heater Work?

By: David Trinh
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How Does a Tankless Water Heater Work

When most people think of a water heater, they think of the big metal tank that they keep in their basement.

Have you ever wondered how a hot water tank works?

The answer is by repeatedly storing and reheating water while waiting for you to use it. 

This system is not very efficient, so some of the leading brands have come out with the answer in the form of tankless water heaters. Some people might be surprised to know that there is an entire category of water heaters that have no tank at all!

So, how does a hot water heater work when there is no tank to store the water?

In this article, we will explore how tankless water heaters work, from gas and electric tankless heaters to whole home and point of use models.

First, to help understand how hot water heaters work, check out this informational video from Rinnai.

What is a Tankless Water Heater?

tankless water heater on wall

Before you buy a tankless water heater, it is important to have at least a basic understanding of how it works. Tankless water heaters simply heat water, usually with gas or electricity, before feeding them to your household fixtures. Rather than storing hot water in a tank, these systems draw and heat water on demand just when it’s needed.

Tankless water heaters can be differentiated by fuel type, flow rate and type of application. There are many more subcategories and specifications that shape how a tankless water heater works, but these basic differences are a great start for anyone researching electric or gas tankless water heaters.

Let’s go over these different specifications which determine how a tankless heater functions.

Tankless Heater Fuel Type

gas vs electric fuel

First, we will explore fuel type, which is the main difference in how all tankless water heaters work. As a result, it is often the first decision a homeowner needs to make when shopping for hot water heaters.

Most tankless water heaters are powered by electricity or natural gas, but they can also use solar power, geothermal energy, fuel oil, and propane. Customers typically choose their fuel type by the price and availability of power sources in their region.

Gas tankless water heaters are generally preferred for higher demand situations, due to their ability to provide more hot water at a faster rate than other types. In most parts of the country, gas is favored as it is more widely available and more affordable. Gas can be a pain to install, however, as required venting could be difficult and expensive to achieve.

Electric tankless water heaters are also effective, especially where water demand is average or lower. They typically top off at around 8 GPM, which is generally enough for a smaller family but is much lower than the capabilities of a gas tankless heater.  

Electric tankless water heaters are a great choice for those looking to save money, as they are typically much less expensive to purchase and easier to install. They also tend to be lower maintenance than gas tankless heaters, making them ideal for a secondary residence or a person with limited mobility or resources to handle ongoing maintenance.

Tankless Heater Flow Rate

sink faucet water

The next option homeowners must consider is the flow rate capability. Flow rate, which is expressed in Gallons Per Minute (GPM), describes how much water can flow through the heater and be sufficiently warmed at any given time. Taken literally, this measurement tells us how many gallons of water can be heated by the equipment each minute, then pushed to your appliances.

The GPM required in your home is calculated by finding the sum of all the individual water appliance GPM’s in your home that you need to run at the same time. Usually, this includes household appliances such as sinks, dishwashers, and clothes washers. 

Water heaters in regions with lower groundwater temperature will need to work harder to keep up with the water usage of the house while hitting the desired temperature. Because of this, the GPM measurement is paired with another measurement called “temperature rise”.

Temperature rise is simply how many degrees warmer the water can get at the listed flow rate or GPM. While shopping for tankless hot water heaters, you may see a technical specification that looks like the following:

11.5 GPM @ 45 Rise Capacity

In this example, the unit can increase the groundwater temperature by 45 degrees at a rate of 11.5 gallons per minute. As long as you use less than eleven and a half gallons of hot water in a minute, and the groundwater temperature in your area is at least 75, you won’t have to worry about running out of hot water! For more information on how to correctly size a water heater see the sizing article.

Type of Application for Tankless Heater

2 bathroom house

When buying a tankless water heater, another decision is whether to use whole house or point of use water heaters. Once again, the industry has given us self-explanatory terms to use – these are exactly what they sound like. The application doesn’t really affect how the tankless water heater works but can require specialized features.

Whole house tankless water heaters revolve around one primary heater that feeds hot water to the entire residence.  If the demand is too high for one heater to handle, they can be “ganged” or combined with other compatible units to increase their output capacity.

Heat loss can occur as water travels through the pipes, so the farther away the fixtures are the more of an issue this could be. If you want fast hot water, this is an important consideration. If you think about how hot water heaters work, this is also true of a traditional tank heater.

Next, you might be wondering “What is a point of use water heater?”. Point of use water heaters, on the other hand, are installed in close proximity to the fixture that will require hot water. They are intended to be installed within two feet or less of the fixture, hidden under a sink or in a utility closet. Point of use systems are generally installed when the fixture is too far from the primary heater or is otherwise difficult to include in the main water heating system.

How Does an Electric Tankless Water Heater Work?

inside an electric tankless water heater

Now that you know what a tankless water heater is, we will look at how specifically an electric water heater works. So, how do electric tankless water heaters work, after all?

Tankless water heaters are sometimes also called “on demand”, because they only begin working once there is demand for hot water, as opposed to tank heaters that store warm water.

The heating process begins when a faucet or appliance is turned on and a flow sensor detects water flow.  At this time, the water flows over electric elements that heat it as it passes by. From here, the warm water is fed to the fixture requiring hot water.

How Does a Gas Tankless Water Heater Work?

inside a gas tankless water heater

If you were wondering how a gas water heater works differently than an electric model, it’s simple. Just think of how electric tankless water heaters work, but instead of the water flowing over heated metal coils, they pass through a heat exchanger. A heat exchanger is just a series of tubes which pass by gas burners to heat up the water. The heat exchanger is a critical piece of the puzzle in tankless gas engineering.  

Regardless of how a hot water heater works in terms of fuel type, the GPM capacity requirement will depend on the daily water demand of the household.  People who question the effectiveness of tankless heaters may have had an incorrectly sized unit installed.

For example, a couple who only has one bathroom and no on-site laundry or dishwasher will only need a 5 GPM water heater. This could be accomplished with the affordable Rheem RTEX-36 Electric Tankless Water Heater. A family of four in a normal size home, on the other hand, could require upwards of 9.5 GPM.

What is a Point of Use Tankless Water Heater?

point of use water heater

Point of use tankless water heaters are basically the same as whole house water heaters. The difference is that these heaters are typically installed within two feet of the fixture requiring heat, like under a sink. When water flow is detected by the sensor, water is heated, then fed to the faucet or appliance.

Because point-of-use water heaters are installed in a living space rather than a mechanical room or basement, they are much more compact. The small stature of the equipment also results in lower power, so point-of-use heaters can only be used for low use fixtures.  


Are you interested in upgrading your standard tank water heater now that you know how tankless water heaters work more effectively than traditional tank models? When you’re ready to pick a water heater, check out some of the best high-efficiency tankless water heaters from great brands like Rheem, EccoTemp, and Titan!

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David Trinh
David is an expert in all things plumbing, heating, cooling, and water treatment. He got his start in the plumbing business working on fixing all types of home improvement issues including water leaks, broken toilets, appliance installation, and more. Over time, he learned a ton about installing and choosing the correct water treatment products for homeowners.

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