I want to pay the closing costs and purchase points, rather than roll the costs into the mortgage. Why pay interest on costs if I don't have to? My credit is excellent and always has been. I would only be liquidating stocks and leaving retirement and non-equity investments alone.
The "why roll costs into the mortgage" is obvious - because you get to borrow at very low rates rather than sacrificing future returns on your cash. I understand if you are debt adverse and don't want to do that. But it will be costing you money.
You might want to clarify your goal. Is it to reduce your debt? Reduce the length of time before being debt free? Minimize the total interest paid? Maximize your expected future net worth in, say, 30 years? Those are all perfectly acceptable goals but they have different necessary choices now.
I'm not sure if I can deduct the liquidation for mortgage purposes or not. Historically we get a sizable refund back each year.
No one can "deduct a liquidation for mortgage purposes." If you are selling then you should be selling so that any losses you realize are balanced with gains so that there is no net gain. This lets you shelter gains from taxes...and basically most people should be doing that every year. It should certainly be on the agenda if you are going to be liquidating anyway.
Personally, when we refinanced a couple of years ago we paid the costs in cash but we did not liquidate any investments to do so. Any investments we sold and put into the mortgage would have instantly had a low future return - lower than we expect from leaving the money where it is. The cash we were holding however had no return so we depleted it and have now built it back up.