Tankless water hot heaters guide for your home

Written by the Square One team

Updated June 24, 2024 | Published November 11, 2013

Most Canadians get their hot water from a hot water tank. But, if you’re building a new house or it’s time to replace your old hot water tank, you may want to consider an alternative: a tankless water heater (sometimes called instantaneous or on-demand water heaters). Instead of always keeping a large supply of hot water, tankless systems heat up the water only as you need it. They’ve been common in Europe and Asia for years, but are still fairly new in North America.

Here’s everything you need to know about tankless water heaters:

A hot water tank

What is a tankless hot water heater?

We’re all accustomed to seeing a big hot water tank in the basement of most Canadian homes.

Tankless systems look quite different: they’re small and usually hang on a wall. There are several varieties, which we’ll get into below, but they all function the same way: cold water flows in one end, a gas or electric heating element raises it to the desired temperature, and hot water flows out.

Tank systems waste a great deal of energy keeping water at a constant temperature (a phenomenon called standby heat loss. Tankless systems avoid this by heating water on demand.

How do you know if a tankless heater is right for you?

Tankless water heater inside a home

For many people, the type of water heater they have doesn’t matter as long as it gives them hot water. Fair enough. But there are pros and cons to tankless or tank models.

Glenn Wiseman, Sales Manager of Top Hat Home Comfort Services, says that tankless water heaters have the benefits of on-demand hot water and increased efficiency.

“However,” says Wiseman, “the downfall of [tankless water heaters] is the initial cost and time of installing them, you may need to make some significant changes to your home in order for you to accommodate them.

“It can be expensive and time-consuming when installing a tankless water heater compared to a tank water heater, especially if you need new gas lines and ventilation to be installed.”

Even if you’re going for an electric model, you might need the help of an electrician to ensure that your circuit breakers and electrical service are up to snuff.

There are other pros when it comes to tankless heaters, too:

  • They last 5 to 10 years longer than tanks.
  • They’re compact and take up a lot less space.
  • You can save money in the long run on your power or gas bills.
  • You don’t have to worry about running out of hot water.

Tankless water heaters are more expensive up front than hot water tanks, costing up to 3 times as much. They’re also a little more mechanically complex, which means more chances for things to go wrong.

“If you are still unsure which system to go for, I recommend contacting an expert to provide you with the information you need to make the best decision,” says Wiseman.

How much do tankless water heaters cost?

Tankless water heaters are more expensive than hot water tanks, but not always by a lot.

A small, electric tankless water heater costs as little as $500. This type would only supply enough hot water for a small apartment, however.

A gas tankless water heater for a family home costs as much as $3,000, though smaller and cheaper models exist depending on your water needs.

Of course, there are also installation costs to consider. These vary widely depending on how much extra work you need to have done:

  • Expect to pay $200-500 for a straightforward installation of an electric tankless water heater.
  • Expect to pay $1,500 or more for a complex gas installation, including new gas lines and venting.

These costs can increase further if you need to cut into a lot of drywall or flooring to access pipes.

Renting a tankless water heater

In many parts of Canada, renting hot water tanks is common, and you can rent tankless units, too.

The cost of renting a tankless water heater starts at about $40/month.

Estimated home energy savings

Tankless water heaters are more efficient than their tank-style counterparts. But by how much?

The energy savings of a tankless water heater depend on essentially two things: how much water you use, and how much you pay for the energy.

For low-usage homes (under 155 litres per day), tankless water heaters offer energy savings of 24-34% compared to hot water tanks—a substantial decrease.

However, a family of four can use nearly double that amount of hot water in a day.

If you use 325 litres of hot water per day, tankless water heaters are about 8-14% more energy efficient.

How does a tankless water heater work?

To put it simply, tankless water heaters work the same way hot water tanks do: they heat the cold water coming into your house and send it to the faucet, shower, or dishwasher. The difference is that tankless units do it on demand, rather than keeping a reservoir of hot water.

Here’s a diagram of a basic gas tankless water heater:

Labelled diagram of a tankless water heater

  1. Cold water intake. This is where cold water enters the heater. There is a valve to shut off the water supply for maintenance, and often a simple filter as well.
  2. Flow sensor. Tankless water heaters turn on automatically when they sense water flowing. They have a minimum flow rate before they kick on—that’s why sometimes they don’t work if you’re trying to draw just a trickle of hot water.
  3. Burner and fan. Gas-powered models produce a flame to heat the water, and the fan draws in air to help it Electric models don’t have a burner, but an electric heating element.
  4. Heat Here, the cold water snakes through a long series of tubes as the burner’s heat raises the temperature.
  5. Exhaust vent. Gas water heaters produce exhaust, which gets vented to the outdoors. Condensing models (see below) pass the exhaust over a second heat exchangerbefore it leaves the
  6. Control panel. The electronics that regulate the water temperature and control internal systems.
  7. Mixing valve. The water leaves the heat exchanger at scalding temperatures—much higher than you need. The mixing valve adds some cold water to the output to bring it down to the desired temperature.
  8. Output valve. Here, the hot water passes a final temperature sensor as it leaves the unit and heads to your faucet or washing machine. There’s also a pressure relief valve for safety, and another shutoff valve for maintenance.
  9. Gas valve. On a gas-powered water heater, there is a third shutoff valve for the gas itself. This should also be shut off during maintenance.

Tankless systems heat the water quickly by passing it through a heat exchanger. They use either electric coils or a gas burner to generate heat.

As soon as you turn on your hot water tap, the flow of water turns on the heat exchanger, and the water heats up to the temperature at which the heater is set.

Tankless water heaters are usually classified by their fuel type, and whether they supply water to the whole house or to a single fixture.

Let’s look at those differences:

Types of tankless water heaters

Gas vs. electric

Tankless water heaters use either electricity or gas to heat the water. Gas heaters burn either natural gas or propane, depending on the model.

“Gas tankless water heaters are often more expensive than electric systems and require professional maintenance annually,” says Wiseman. “You also need to make sure that natural gas is easily accessible in your area. However, the operating system of gas units performs better compared to electric units.”

Wiseman continues, “on the other hand, electric tankless water heaters are much simpler while operating and maintaining them, plus more efficient than gas systems. The main downside of purchasing an electric unit is that it requires a great deal of energy to operate.”

For small-to-medium-sized homes, you can choose between electric or gas, but a large house with a family of four or five will almost certainly need a gas model to meet the hot water demandss.

The energy costs ultimately come down to what you pay for gas or electricity in your area. In most of Canada, gas is cheaper. The higher upfront cost of a gas heater evens out over time.

It’s worth noting:

The high cost of gas heaters isn’t just the unit itself; there’s also the added cost of installing venting and gas lines, neither of which are necessary for electric units.

Electric units do use more energy, but they convert almost all that energy into hot water; gas-powered units waste a lot of their energy as exhaust.

Condensing vs. non-condensing

To help drive up their energy efficiency, some gas tankless water heaters have a second heat exchanger.

The exhaust created by the main heat exchanger is hot—hot enough to cause burns. In a non-condensing unit, that hot exhaust vents right out into the open air, wasted.

A condensing water heater pumps the exhaust through a second heat exchanger before venting it. The heat from the exhaust raises the water temperature before it even gets to the main heat exchanger, making the unit more efficient.

The reason these types of units are known as condensing water heaters is because the exhaust causes condensation to form as it passes over the secondary heat exchanger and cools. Even though the units are designed to drain this moisture away, the condensation process subjects the heater to harsher conditions than a non-condensing unit—they may require more frequent maintenance in exchange for the efficiency boost.

Point-of-use vs. central

Point-of-use and central tankless hot water heaters are named based on where they’re installed.

Point-of-use tankless water heaters are small, and they are installed right next to the faucet or appliance to which they supply water. These units only heat water for a single point-of-use—hence the name.

Point-of-use tankless water heaters are often used inside detached structures like workshops, or in large homes where hot water would need to travel too far from its source.

Central tankless heaters, on the other hand, are much larger and can supply hot water to an entire house. These are equivalent to the hot water tanks installed in most Canadian homes.

Like hot water tanks, tankless water heaters are usually in the basement or garage, but their smaller size means they can also fit inside closets, washrooms, or laundry rooms.

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What size tankless water heater do I need?

By now, you should have a good idea of whether or not a tankless water heater is right for you. But if you’ve decided to install one in your home, how do you choose the right one?

First, you need to decide if you want an electric or a gas model, based on the information above.

Then, you basically need just two pieces of information to make sure you’ve chosen the right tankless water heater for your home: the output rate and the temperature rise.

Here’s how to figure out both:

(Jump to the bottom of the page if you’d prefer a visual guide!)

Output rate

Tankless water heaters can’t produce an unlimited amount of hot water; if you use too much at once, your heater won’t be able to keep up, and your water will be cooler than you want.

The maximum output of a hot water heater is measured in gallons or litres per minute.

To figure out how much you need, calculate your peak hot water usage. That is, how much hot water do you expect to need at the busiest time?

Figure out which hot water appliances or outlets you’ll be using at that time and add their usage rates together. You can often find an appliances usage rate in the manual, or on the manufacturer’s website. If you can’t find the specific usage rate, an estimate is close enough.

Here are some estimated usage rates for common appliances and fixtures, and how to use them in calculating your peak usage rate:

Tankless water heater output rate chart

Of course, you want a water heater that will keep up to your demands. But, getting one that’s too large is a waste of money and energy. That’s why it’s worth calculating your home’s peak hot water usage.

Temperature rise

The other important stat you want to look at is the heater’s temperature rise. This is the measure of how quickly it can heat water—slightly different than how much it can output.

Temperature rise matters because the incoming water temperature varies from place to place and season to season. A water heater that functions perfectly during the summer may struggle during the winter, as the water supply is colder. The output rate above assumes that your heater also has a high enough temperature rise; if the rise isn’t high enough, its output rate will drop.

To figure out your required temperature rise, start with an estimate of your incoming water temperature—use the lowest winter temperature you expect to commonly deal with. 10 °C is a common benchmark, but the water supply in colder parts of Canada can drop as low as 2 °C!

Then, decide how hot you want your water to be. You typically want to raise it to somewhere between 45 and 50 °C. With a tankless water heater, you don’t need to worry about killing bacteria like in a hot water tank, so set the temperature no higher than what you actually intend to use.

Information on tankless water heater temperature

The difference between your incoming water temperature and your desired temperature is how much temperature rise you need on your tankless water heater.

What should you do when something goes wrong?

Here are some common issues with tankless hot water heaters and tips to resolve them:

Have no hot water

Check to make sure the unit has power and is running.

On electric units, there should be a red standby light. If it’s not on, a breaker may have tripped. Reset the breaker. If it’s still not working, call a qualified technician.

If you have a gas-powered unit that’s not producing hot water, check the obvious stuff first: the gas valve is on, and you’ve paid your gas bill (or filled your propane tank).

If that doesn’t solve the issue, check your water heater’s exhaust vents. Obstructed vents can cause the unit to malfunction, too.

If the easy stuff doesn’t fix your unit, the problem may be more technical in nature and you’ll need to call an expert.

Not as much hot water as before

If your tankless water heater usually works fine but suddenly the water is cooler than normal, it could simply be that the water supply temperature has dropped. If the incoming water is extremely cold, the heater may not be able to warm it quite as much as in the summer.

There isn’t much you can do in that case except wait for warmer temperatures or buy a new tankless system with a higher water rise rating. If the issue is persistent, you could buy point-of-use heaters for the most important water outlets as a cheaper option.

When I turn the tap down to get just a light flow of hot water, it turns cold

Most tankless water heaters require a minimum water flow for the heater to come on—usually around 1.5 litres per minute (or 0.4 gallons). If the flow is less than that, the heater shuts off. To fix this, just open your tap a bit more to increase the hot water flow.

Can’t get enough hot water to fill my tub

If you open the hot water tap all the way, you may be pulling too much water for the heater to handle. Instead, turn the hot water down a little. It’ll take a little longer to fill the bathtub, but the water will be nice and hot.

Problems from improper installation

Sometimes problems stem from improper installation of your water heater:

Venting the exhaust

Tankless systems generate a lot of heat. Accordingly, the exhaust is very hot and needs to be vented quickly. The system monitors the exhaust temperature and will shut down if it can’t vent the heat and exhaust effectively.

A ventilation system with too many corners or too great a distance might cause your unit to overheat and shut down.

Scale buildup

If you have hard water in your area, minerals can build up in the heat exchanger. This can result in improper operation or even failure of the unit. See the next section on how to descale your heater. You can install a scale filter or a water softener to help prevent the buildup in the future.

High water pressure

If you live in an area with high water pressure, it could be putting stress on your tankless water heater (not to mention all your other plumbing). You may need to install a water pressure regulator to avoid premature failure of your water heater.

Incorrect size

Installing the wrong size tankless water heater is a common problem. Make sure you do the necessary research to ensure you have enough gas, you know how much output you require, and you place the heater in the right location. Otherwise, you may not have hot water when you need it.

A qualified professional contractor can help you determine the right size and the right location for your tankless water heater.

How can you maintain your tankless water heater?

One of the best things about tankless water heaters is that they’re pretty low maintenance. That being said, there are a few things you can do to help your water heater function smoothly:


When you have hard water—that is, water with lots of dissolved minerals in it—it will cause a buildup of those minerals inside your water heater over time.

“One of the most common reasons tankless water requires maintenance is because of the buildup from hard water,” says Wiseman.

Scale buildup inside your water heater makes it function less efficiently, so you should descale it.

But, how do you descale your tankless water heater?

Flushing the system

You can dissolve the scale buildup by flushing your tankless water heater with a descaling solution—that is, disconnecting the water flow and pumping the solution through the unit instead.

“You may use vinegar flush or water softener to keep it from clogging the unit,” says Wiseman. “However, to do an effective job at this, I would recommend contacting an expert who can do the task quickly and effectively.”

So, it’s possible to flush the water heater yourself, but it’s best done by a professional.

If you want to see how a qualified technician does it, here is a video example.

Install a water softener

If you do have hard water, one solution to install a water softener to help prevent a buildup of calcium. Calcium is one of the minerals most responsible for scale buildup.

It is possible to DIY a water softener installation if you’re familiar with plumbing work, but it isn’t necessarily easy. You don’t always want all of your water running through the softener. For example, homeowners typically prefer un-softened water for outdoor use and drinking.

In those cases, you’d need to create new branches of your plumbing system to work around the water softener—a task best left to a plumber.

Cleaning the water filter

Tankless water heaters have sediment filters inside them. These filters aren’t fine enough to filter out the dissolved minerals that cause scaling, but they keep bits and pieces of other stuff from clogging your unit.

The filter is normally located at the cold water inlet.

You should take out the filter and give it a wash about once per year. To clean the filter, first shut off the cold water supply. Then, unscrew the filter, clean out the sediment, and replace it before turning the water supply back on.

What is the life expectancy?

Because there is no storage tank, and less risk of corrosion, the life expectancy of a tankless water heater is much greater than that of a regular hot water tank.

“The life expectancy of a tankless water heater system is generally 20 years if maintained and cared for very well,” says Wiseman.

That includes occasionally descaling your water heater if you’ve got hard water running through it.

What will your home insurance provider want to know?

Type of water heater

Before to buy home insurance, the insurance providers will want to know the type of water heater you have as well as the age. They may also want to know if it was professionally installed, or if there are any signs of leakage or rust.

The age

Water damage is the cause of many home insurance claims, so insurance providers are understandably concerned about older water heaters.

With the storage tank type, there is always the risk of leaking, or even rupturing, causing significant water damage. With a tankless model, there is much less chance of water damage occurring. But of course, even tankless models have a risk of some leakage (especially once they pass their life expectancy).

Other information

When you’re shopping for home insurance, be sure you know the type, age, and condition of your water heating system. This will help you get a speedy and accurate quote, as rates may vary based on these factors.


Some home insurance providers offer discounts to customers who have tankless water heaters. After all, the fact that there’s no tank of water means one less source of potential water claims.

At Square One, we offer lower premiums to homes that have a new hot water heater. Check out some of the other discounts we offer.

Commonly asked questions

Does a tankless water heater increase home value?

Tankless water heaters don’t generally increase home value directly.

They are, however, a potential selling point. Many buyers see tankless systems as more modern than tank versions.

So, while you may not recoup the cost of installing a tankless system when you sell your house, it might make it easier to sell—and you’ll save on energy costs in the meantime.

Are tankless water heaters loud?

Tankless water heaters are normally not very noisy.

Of course, it depends somewhat on the model you have; some are louder than others. Most homeowners with tankless systems report that they can’t hear their units at all when they’re located in the garage or basement.

Most likely, the device that’s drawing hot water (a dishwasher, shower, or faucet) is going to make more noise than the water heater.

Visual guide: how to choose the right size tankless water heater

Information on choosing the right tankless water heater

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