What is a tankless hot water heater?
Normal household water heaters hold the water in a tank and continuously heat it, even when you're not using any water. The temperature must stay warm while you're sleeping, while you're at work, and even while you're on vacation if you don't turn down the thermostat before leaving. A tankless hot water heater is "on demand heating", meaning that the water is only heated as you need it in real-time - thus saving you anywhere from 10% to 50% on your water heating costs.

The Stiebel-Eltron Tempra 20 is the only tankless water heater in the comparison to run off of electricity. This has the added benefit of making it easier to install, and somewhat safer, but may require you to upgrade your circuit-breaker box to handle the enormous load needed to heat the water. This Stiebel Eltron model is not made for large households, but is a very affordable and efficient option for small bungalows where only one shower will be running at a time. It won the editor's pick primarily for its affordability and ease of installation, although some of the models below may be a better option if you're looking for a more robust water heating solution. The biggest problem we had with this unit's review is the lack of a comprehensive warranty beyond three years.

The Aquastar 2400E tankless hot water heater is made by Bosch, known for their quality engineering. There are smaller Aquastar options available (see the link below the product) but we chose to review one of the large tankless hot water heaters by Bosh - the 2400 E. This unit is probably the best option for large families where there will be more than one hot-water need running at the same time - such as two showers, or a shower and a dishwater, clothes washing machine, etcetera. The ability to use propane as a power source is great for off-grid applications, such as mountain homes. We also like the long, twelve-year warranty on the heat exchanger, but felt they could have added another year to the parts in order to bring it up to par with the paloma.

The Paloma tankless water heating system is another great choice for large homes using more than one water source at the same time. It also has the added benefit of using either propane or natural gas, depending on which model you choose. However, it is a rather large unit that doesn't come with a lot of bells and whistles as far as controls are concerned. Overall it is a good system, but we felt other options were slightly better. The Paloma's warranty is one of the best in the business at ten years on the heat exchanger and three years on all other parts.

The Takagi T-K2 water heater is the most expensive unit reviewed, and if have the budget it is worth the money. This hot water heater is full of features, such as the remote control, and great safety options, as well as high-end materials like non-corrosive copper and brass. There are two downsides to this unit - The price, and the mediocre warranty. Don't get us wrong, seven years on the heat exchanger and two years on everything else is a decent warranty, but it doesn't stack up against some of the other options above in that department.

Note: Looking for a cheaper option? Try the $299 PowerStar