Yikes! That’s got to be a pretty rare thing to happen.
The total cost over ten years is about $5300. That’s payments of $44 over 120 months.
Yes, that 10% does make one shudder.
As for the OP question, I think tankless or demand heaters are great, but they have a gaggle of complications as a retrofit option. A few years ago, we’d looked at getting one, but when we found that it needed a larger gas line and a larger vent than the existing standing tank heater, we abandoned that idea. Not to mention that we’d still have to wait a minute or two for hot water to make its way to the bathroom.
Installing multiple smaller point of use heaters is another option that eliminates the long wait for hot water to arrive, but those involve running gas or electricty to under the kitchen sink, or to whatever point is convenient to the bathroom(s) and re-doing the pipes to connect the sinks and showers to the heater.
One “gotcha” to be aware of when replacing any kind of water heater is the cost of code compliance. Around here, you can spend at least as much on adding new requirements like an expansion tank and piping the overflow pan drain to the outside as you will on the heater itself.
We had point-of-use gas water heaters when we lived in Europe. Instant hot water is very nice. The problem with the gas units of this type (in addition to your comment) is that every one of them has to be vented to the exterior, which means holes in the walls or ceiling (and possibly in the roof), vent ducting, etc.
This was my experience too. Heater just rusted out gradually, and sprung small leaks around the bottom. Of course those leaks would have gotten catastrophically worse if allowed to. Landlord replaced heater soon enough.
Water heaters haven’t exploded since the pressure relief valve became required.
Any salesperson who dregs up that hoary old tale is not worth talking to.
So much for the proposal on the table - it goes in the trash. A note to never deal with the thieves who wrote it goes in the permanent file.
The big deal with tankless is venting - you can’t use the old flue the tank unit used.
If the current water heater is mounted on either an external wall or just below the roof, you have an easy install - they produce a tremendous amount of heat and require very expensive stainless with limited bends. Either through the roof or an exterior wall and at least 4’ from any open-able window or door.
Talk to a real plumber.
If you’re going to be in the place long enough, you will recoup the additional cost.
How long your current heater will run is not anybody one the web can tell you.
Given the cost of having one fail, I suspect the manufacturers build them to last much longer that just the warranty period.
It’s also double-walled, with intake and exhaust air in the same pipe, which saves having to punch two holes in the wall. It made sense for us to install this type of heater, as our basement has no floor drains. The previous owner had a tank heater spring a leak; by the time he discovered it, there were 2" of water on the floor.
$5000 isn’t just a rip-off, it’s practically criminal. A decent tankless heater will cost $1k plus installation cost (which is negligible, assuming you aren’t replacing pipes too). To put this in perspective, our plumbers threw in a (standard) water heater and installation as part of a $3,000 replumb of the house.
Run.
You are closer to correct when you might think. Many places that sell high priced anything on financing are most likely not carrying their own loan, they are using a 3rd party loan provider that runs a quick credit check on you and then charges a hefty markup. For example, a place approached me with the option for selling computers this way. I would have the customer fill out the little quickie loan application and fax it to them, they would call me back in like 15 minutes saying yes or no.
A $1000 computer would be sold as like 24 payments @ $60/month and they would cut me a check for $1K within a few days. This plumber is probably doing the same type of thing, figuring that a low monthly payment will encourage an easy close.
The WH in my house is over 40 years old and still making water hot. If it ain’t broke don’t replace it.
Except that one or two advances have been made in energy efficiency during the past forty years. So even if your Nixon-era water heater is still working, the money you save might make a new one worthwhile.
Where I live, in NC, few homes have basements due to the clay soil (poor drainage) and climate (further North, basements help dramatically reduce heating costs.) People here have horror stories about water heater tanks in attics that failed and drained causing significant costly damage. Most are switching to tankless because they can be relocated OUTSIDE rather than in the attic, eliminating that threat, and replacing it with the possibility of a freezeup in very cold weather (with a simple remedy: turn some hot water faucet on at a fast drip or tiny stream: won’t waste energy, just water, and avoids the freeze threat during the cold snap.)
Folks 'round heah tend to replace their attic hot water heaters when they’re old, before they fail, even if they’re not switching to tankless. Attic heaters have drain pans with hoses to divert in case of a slow leak, but it’s not always a slow leak. (Explosions aren’t common, as mentioned above the safety valve avoids that. Tested your safety valve recently, though?)
Is your water heater in your attic? Are you in a climate where a tankless can be located outside? If so, it might be worth considering, more as insurance than as a way to save money.
Modern tank heaters are very efficient and well-insulated, and for certain use patterns are nearly as good as tankless.
Tankless heaters often require an upgrade to gas lines: they use a LOT of gas when they’re going.
Tankless are a clear win when usage patterns are irregular, such as for a vacation home: you’re paying nothing to heat the water while gone, and it’s hot immediately when you get there. With a tank, you either pay for it while away, or wait for it to heat up when you get there.
I put a tankless in my home, because my wife wanted unlimited hot water for certain applications. It works great, but I do find it annoying that I can’t get tepid water by using mostly cold and just a little hot – if you don’t have enough hot water flowing, the fire doesn’t start. Also, I wash the dishes using a sprayer (much like a commercial sprayer), and that’s wrong for tankless because it’s a lot of start/stop/start. So I have to leave the hot water running at the tap, just above the cut-off flow rate. Other than that, it’s great.
It takes a couple seconds longer. That is, my gas heater does. Perhaps electrics are slower.
You’re skating on … oh never mind.
Some of the electric ones are capable of a much broader range of flow rates. This is because it’s harder to regulate a flame to different rates of combustion than it is to regulate the flow of electric current.
Also, the electric ones are cheaper. I’ve seen arguments that the more expensive electricity they use is compensated by the fact that they are more efficient than a gas tankless heater (gas tankless can be only 50-60% efficient versus 95%+ for electric) and the lower upfront cost can mean that the electric remains cheaper for any timespan. Also, the electric ones are simpler and easier to fix.
$1800 is how much it cost one of our clients who bought a tankless hot water system for a half a million dollar house.
Specifically in regards to this question, I’ve had one in my place for over 10 years, and would never use a tank system if I had a choice. The big benefit is you never run out of hot water. If you have a family, or you enjoy long showers like I do that can happy pretty quickly on a tank system.
The only slight downside is it takes a second or two for the hot water to come through, so turn the shower on before you hop in 
I’m hesitant to comment on the energy cost, because I’m not sure what the situation is in the US, but in general I understand it uses less energy.
If you use electricity rather than gas, something to consider when comparing tank heaters with tankless heaters is whether or not your electricity rates vary by time of day. Compare the cost of using an insulated tank on a timer that only uses power when the rate is low against a tankless heater that uses power that may be during peak periods. I’m not suggesting one or the other – just something to factor in to the decision.
They may look cheaper, initially, but I’ve put in a few for neighbors, and the installation cost of an electric tankless can be very high. Hi capacity ones can require a 100 amp feed, which can often lead to needing to upgrade the service to the whole house. Even smaller bathroom point of use heaters that I have installed require a 40 to 60 amp feed… Again, not something inexpensive.
They also seem to fail rather often. Two have had control boards fail, with loss of hot water for a week or more trying to get replacements, 1 had the heater element burn out, that was a total replacement, 1 developed a leak, and 3 others clogged up to the point of being inoperable. Not a good track record for my money over a three year period.
I just replaced my electric tank heater after 24 years, it wasn’t leaking, and the only issue I ever had with it was a need to change the $18 heating element twice. The new one is much better insulated, and glass lined, so the efficiency is up, and tank corrosion is even less of a concern. For me, the cost would have been about $800 for the water heater, and then another $2000 or so just for the electric service. The tank heater cost about $325 with a 20 year guarantee. Easy bet there.
ETA: For some people, the idea of “Being Green” is predominant, but for me, if the lifetime operating cost can’t pay back such a large investment, or even come close, the hell with green.
Sorry, but your math is wrong. As stated earlier, the interest on a 10-year, 10% APR, $5000 loan is $2,929.04 (using Excel PMT formula so it differs slightly from previous value). The payments are $66.08 per month for 120 months.
This is a little misleading in the sense that while electricity may be 95% efficient it is being measured at the outlet (plug). The steam electric generation process (used for the vast amount of generation in the US) has an overall energy efficiency typically in the 33-38% range with the very best approaching 45-48% (see Carnot cycle on Wiki for more info).