A traditional hot water heater holds hot water in a tank and keeps the water hot, even when it's not in use. A tankless hot water heater, by contrast, heats water only when it's needed. A tankless hot water heater can be a wise, energy-saving choice, but they are not without disadvantages.
Between the cost of the tankless hot water heater and the installation, a tankless heater usually is more expensive than a traditional heater. Small models cost less, but don't provide as much hot water comparatively.
Water Temperature: Too Cold
Some tankless hot water heaters don't have a thermostat and only raise the water temperature approximately 60 degrees. This can pose a problem, when, for example, the incoming water is just above freezing--the water then will only be heated to 95 degrees, which isn't warm enough for dishwashers.
Water Temperature: Too Hot
When the water from a tankless hot water heater is first turned on after not having been run for awhile, it can come out very hot. The water temperature is often high enough to scald, posing a danger especially to children.
Although the makers of tankless hot water heaters often claim that there will always be enough hot water for everything, less powerful units usually aren't strong enough to supply hot water to more than one place at a time. If someone takes a shower while the dishwasher is running, for example, neither will have enough hot water in some cases.
The plumbing and electrical systems in older homes may not be compatible with a tankless hot water system. Older homes may need to have their plumbing or electrical systems updated before a tankless hot water heater can be installed.