Hi secondrowdol
Taking the two properties in order:-
The jointly owned property is yielding less than 6.5% (€700 x 12/€130k x 100) on a gross basis - that equates to a net yield of around 4.5% (6.5 x 70%) and you're paying a rate of 5.15% to finance the purchase of this property. Before you even start to think about taxes, it should be obvious that this is not a winning proposition. Would you borrow money from a bank at a rate of 5.15% to put it on deposit at a rate of 4.5%?
Your wife's property would yield around 5.3% (€1,100 x 12/€250k x 100) gross, around 3.7% net (5.3 x 70%) and is being financed at a rate of 4.25%. Again, that makes no sense to me as an investment - why pay an interest rate of 4.25% to purchase an asset that yields 3.7%? Again, that's before you even take account of the fact that currently 25% of the interest payments are non-deductible for tax purposes.
I'm ignoring the equity position in relation both properties for simplicity.
So, that's the maths. In the real world you obviously have important relationships to consider.
You're actually not in a bad position at all but don't get hung up on the past - it really is irrelevant to the decisions you have to make today.