For the moment, I'll ignore the discussion about keeping the mortgage.
Disclaimer: I know enough to be dangerous... I recently sold my last rental property when property appreciation in Denver made getting decent return on the appreciated real estate impossible. (Section 121 exemption exclusion for those in the know.)
Tax law is designed to incentivize rental real estate investors to keep the capital gains in rental real estate. You will hear the phrase "1031 exchange" frequently.
First, the structure of your rental is only yielding ~3.5% before depreciation, and this is not good! With the low rent relative to the value, you should consider selling this property, although paying off your mortgage on your primary residence may not be a good idea since you may pay a shit load of taxes.
Did you live in this house at least 2 of the last 5 years? If so, this get complicated in a good way to save you taxes. You will be looking at a Section 121 exchange exclusion, and that is far above my pay grade.
We are missing three very critical numbers for estimating the taxes on your sale. First, we need the original purchase price on the property, and the costs of any improvements. Second we need to know the total depreciation claimed on the property. Finally, we need to know the top tax rate for your 1040 income.
Selling a rental and using the funds to pay off your mortgage will result in:
1. Capital gains tax on the increased value of the home, net of any improvements and sales costs.
2. Income tax on the amount of depreciation claimed. This is known as "depreciation recapture" and can be very significant if the property has been in service as a rental for a long period of time. This is taxed at income rates, not the lower capital gains rate.
Overall, you are likely to pay a lot of taxes to have access to the funds from the rental unit to pay off your mortgage.
AND the financial structure of the current rental property is not doing you any favors. I would prefer for you to sell the rental, and purchase several properties using a 1031 exchange. Those properties should have mortgages to increase your ROI.
edit: 2017.09.21, 10:22 AM : cleaned up some terminology & spelling errors. I really shouldn't be allowed to use my brain after 10pm.