To understand how a tankless water heater works you have to understand what it does first.
A tankless water heater is also called “on demand” hotwater. What it does is it flash boils water when you turn your faucet to the hot position.
In a traditional water heater water is pumped into a large storage tank where it is heated to a certain temperature. When you turn your faucet to hot the water is pumped out of the tank to your faucet. As water is moved out of the hot water tank more water is allowed to refill it, this water is cold and lowers the temperature of the water in the tank. The water tank then warms up the new mixture of water in the tank until it gets to the desired temperature. The hotwater tank never stops heating water, when it brings the cold water mixture to the appropriate temperature it keeps heating the water to keep it at that level. This way of heating water costs money even when you are not using it or even if you are not at home. If you have a scenario that you use a lot of hot water in a short amount of time then you will run out of hotwater and it will take some time before the hot water tank can raise the temperature back to a comfortable level.
A tankless hot water system flash boils water when you require it. As stated above when you turn the faucet to hot then the water moves through the tankless machine being heated as it passes through it. There is no storage of water in a tankless water heater. If you don’t use hot water then it doesn’t waste energy keeping it warm. Another benefit of heating water as you need it is that you rarely if ever run out of hotwater as its made when you want it.
Tankless water heaters are more expensive to install then the traditional water heater but you could save on average 500 to 600 dollars a year in energy costs. It doesn’t take long for you to recover the extra money that you laid out in the beginning.