I would undoubtedly sell the investments if they are positive, maybe even a little negative. That's what non-retirement investments are for, building wealth to spend, give, etc.
- Now you have a second mortgage on your home (risk) and whether deductible or not you're still paying interest on money that you don't need to borrow. Also, the interest is deductible from your taxable income not from your tax so you are still paying most of the interest.
- It seems to me that's what this money is for. You invested to grow your money for some reason. How about solar panels? You don't give numbers so I don't know if you need all of your investments, most or what in order to buy the solar panels. Regardless, I would most likely choose this route.
- No way! It's for emergencies! As soon as you spend it your A/C and heating system will fry and/or you or spouse will get laid off!
- It's debt (risk) and you're paying interest on money that you already have in investments.
Flipping things may put it in perspective. Would you borrow money or liquidate your emergency fund in order to invest in mutual funds?
If you can completely ignore risk then this MAY make sense. Let's say if you could borrow money at 3.75% and had a "guaranteed" investment return of 7.5% and a "guaranteed" source of income (job). But mutual funds (stocks, bonds) aren't even guaranteed to make money and they most definitely can lose and lose big. Also, I hope your job isn't in any way tied to the oil industry.
On the other hand, if you take a loan and fall on hard times you can liquidate your mutual funds to get out of the bind, but you are at the mercy of the market and the worth of your investments at that point. So it may come down to whether you want to choose when to spend your investments, when they are up or at some future date when they may be worth much less (or much more).