Tankless water heaters, also known as demand-type or instantaneous water heaters, provide hot water only as it is needed. They don't produce the standby energy losses associated with storage water heaters, which can save you money.
HOW THEY WORK
Tankless water heaters heat water directly without the use of a storage tank. When a hot water tap is turned on, cold water travels through a pipe into the unit. Either a gas burner or an electric element heats the water. As a result, tankless water heaters deliver a constant supply of hot water.
Typically, tankless water heaters provide hot water at a rate of 2–5 gallons (7.6–15.2 liters) per minute.
You can also install separate tankless water heaters for appliances -- such as a clothes washer or dishwater -- that use a lot of hot water in your home.