I don’t think so. I bonds rates are falling and would lock up money for 1yr and they lose 3mo interest by cashing out before 5yr.

With the time frame being so short they could put extra money into 8wk T-bills (around 4.25% now) but it would be a hassle for a small benefit. I think them paying down the mortgage faster is good. Might at well reduce the balance as much as possible before 8% takes effect.

The 282k house looks to be manageable payments albeit on the high end of what you can comfortably live with. You say it’s a dream house for you so I think you should go for it. The best time to buy is when you really want to. Like you should know it’s worth it due to quality of life improvements.