Do I pay off my investment mortgage or home mortgage first?

Hi Everyone,

I'm hoping you can help me out with some pearls of wisdom regarding my current situation.

I have an investment a 1 bed apartment that I owe €250000.00 to the bank (which is more than what it's worth - prob worth €180K). And I'm getting €800.00 per month in rent. I typically don't pay tax on this currently as the interest rates (75%) cover the income with a few other expenses. The problem I have is that €185K of this is at a variable rate of 4.25% with KBC and this may rise some time soon. I don't want to be caught with my pants down here with a massive interest hike. The remainder is tracker at 2.1%. I'm paying €1580.00 per month and it is due to be paid off in 18 years or so.

I have a home mortgage of €440,000.00 (house is prob only worth €350K) and I pay €2850.00 per month and this is on a tracker mortgage of 2.2% in it's entirety thank god!

I have savings from a redundancy of €120,000.00 due to come out of a 3 year state savings fund in April and need to know what to do with it.

What I know is:
1. I cannot get an interest rate on this $120K after DIRT that will be better than the 4.25%, so common sense says pay off the variable part of the mortgage with the entire $120K. However, If I do this, I will have to start paying significant taxes on the apartment mortgage.
2. I know I can pay off part of my house mortgage with the $120K, but why do that when the rate is currently 2.1% on my tracker?
3. I know that having cash in this economy can be a good thing and that maybe I should at least keep $20-50K for a rainy day in case I get sick or lose my job.

What I don't know is:
1. What would someone who knows money do with this?
2. I'm no expert and need help and advice on not just what is right to do in the short term, but what is good for the long term (eg: May make sense in short term to pay of apt mortgage, but will then pay more tax in the long run)

Can anyone help me with a 10 year or even 20 year plan here? What would you do? Please help me!!

Regards, LCH

I think you will need to give a bit more information about yourself before anyone could attempt to give you some decent advice.

Single or married
Age
Children (ages if applicable)
Earnings
Pension Provision
Any other assets / liabilities apart from what you have given above
Attitude to risk

Thanks Importer for your response. Please see answers below:
1. I am single at present, however may get married in about 2 years.
2. I am currently 36 years old.
3. I have one child, but does not live with me. I pay weekly maintenance.
4. I take home guaranteed after tax €4900 per mth. Then on avge €1500 comm per mth which is not always guaranteed.
5. I currently do not pay in to a pension at all
6. No other assets or risks worth mentioning (car worth €5K, a few shares worth €4K, thats about it).
7. In the past 5 years I've lost my shirt on property and now prob owe more to then bank than I own in assets after working very hard. So I guess I'm not happy about it but nothing ventured nothing gained. I'd say I'm a medium risk type person and wouldn't mind taking some of that cash I have and investing in to something more risky. Prob would not be wililng to throw the full €120K away though.

Thanks again for your help here. I'm lost!

Regards, LCH