I own my house in the midwest and I'm thinking about how to cut down on my hot water heating costs. I currently have an electric water heater that is running around 400-500 dollars annually operating cost. That is with a discount electric rate during the winter months. I have a natural gas line to my house, I just made a big mistake having an electric unit installed instead of a gas powered.

What would make the ideal situation for a tankless water heater?

I will be having a 2nd person living here this month. I'm curious if it would make sense to just get rid of my electric water heater and replace it with a tankless unit. I know that the upfront costs for a tankless unit are greater, but with the rebates and tax incentives + decreased operating costs I don't think it would take too long for the payback. Would be different if I had a gas tank unit.

One installer quoted me $2500 for a tankless unit installed. I believe it would either a Navien or Rinnai. It's my understanding that neither of these are condensing units because they told me the venting is done with the metal pipe instead of the cheaper pvc.

Can anyone tell me from experience if condensing units are much more expensive? And if so, how is the performance?

Also, in the midwest where we have very cold winters, is the temperature of the groundwater a big factor in tankless units and whether they will work? I'm not sure what the groundwater temp is but I know the tankless unit would have to work harder in the winter months to heat the water compared to somewhere where it's mostly warm.

Feedback is appreciated. Thanks.