I don't know. Is there a downside to resting your party after every battle? Because i mean, after most battles somebody is injured and I only can heal every so often without resting via spells or potions.

And I mean it's kind of stupid that a party of heroes rests for 16 hours every 5 Minutes. :(

Please help me out.
All the best,
Michael

No in-game downside, no.

There's no time limit in the game. The only drawback of endless resting is that items on the floor will disappear after some time. But if you loot the monsters after defeating them this only a disadvantage at one location. In the second cave in Dorn's Deep (chapter 4) there's a pile of items lying around which might disappear if you leave to rest outside after entering.

If you want to minimize resting time you can disable "rest until healed" and take a bard, at level 11+ he can heal the party with his song.

In IWD 2, bard's song "War Chant of Sith" only enable when you are in battle. Your suggestion only works in IWD 1.

It doesn't need "full HP" to continue your journey, battle do hurts. You just need to consider can you survive in the next battle.

I suggest to enable "rest until healed" and use all of your heal spell before sleep (outside or in inn).
If you sleep outside, save before to do so. Otherwise enemy may appear and kill your party. If enemy does appear, kill them and get some exp and item for sell. It good for your team and your pocket.

I spent 90% of the time sleeping in HOF mode.

No downside but your own feeling.