Compact boiler with tankless heater for providing heat and domestic hot water and method of operation

A method of exchanging heat between two fluids comprising:

• flowing a first fluid through a first heat exchanger configured to exchange heat between at least one first fluid and a heat source and having cold fluid intake configured to inlet the first fluid into the first heat exchanger and a first hot fluid outlet configured to outlet the first fluid heat exchanger;
• flowing a second fluid through a second heat exchanger and disposed inside part of the first heat exchanger, and configured to exchange heat between the first and a second fluid and a second fluid and having a second cold fluid intake configured to inlet the second fluid into the second heat exchanger and a second hot fluid outlet configured to outlet the second fluid from the second heat exchanger;
• directing the first fluid back through the heat exchanger when a controller detects a need to provide the second fluid;
• and
• directing the first fluid through a circuit where a substantial portion of its heat is removed from the first fluid and then selectively divert fluid from at least one of a first hot fluid outlet and a circuit to the first intake and providing fluid to the first cold fluid intake from at least one of a fluid source, directly from the first hot fluid outlet, and fluid that has circulated through the circuit, when the controller detects a need for hot fluid in the circuit, wherein the diverting step is performed using a three-way valve.