Understanding the Impact of Mortgage Payment on ACA Subsidies

The Affordable Care Act (ACA), also known as Obamacare, provides health insurance subsidies to low- and middle-income individuals and families. These subsidies are based on Modified Adjusted Gross Income (MAGI), which is essentially your total income minus certain deductions and exemptions. If your MAGI is within a certain range, you may be eligible for reduced premiums or cost-sharing assistance on your health insurance plan.

One factor that can affect your MAGI is whether or not you have a mortgage and how much you pay on it. Mortgage interest is tax-deductible, which means it reduces your MAGI. However, if you pay extra on your mortgage, you will reduce the amount of interest you pay, which could increase your MAGI. This, in turn, could potentially reduce the amount of ACA subsidy you receive.

Calculating Your MAGI
To determine how your mortgage payment could affect your ACA subsidies, you need to calculate your MAGI. This is done by taking your total income and subtracting the following:

Standard deduction or itemized deductions
Exemptions (personal, dependent, etc.)
Certain other exclusions and adjustments

You can use the IRS’s MAGI calculator to help you determine your MAGI.

Example
Let’s say you have a MAGI of $50,000 and you pay $1,000 per month on your mortgage. The interest portion of your mortgage payment is $500 per month.

If you were to pay an extra $500 per month on your mortgage, you would reduce the amount of interest you pay by $6,000 per year. This would increase your MAGI by $6,000.

As a result, your ACA subsidy could be reduced by up to $8.50 per month. This is because the ACA subsidy is based on a sliding scale, and as your MAGI increases, the amount of subsidy you receive decreases.

Deciding Whether to Pay Extra on Your Mortgage
Whether or not you should pay extra on your mortgage is a personal decision that depends on your financial situation and goals. If you are comfortable with your current monthly budget and you are not concerned about potentially reducing your ACA subsidy, then paying extra on your mortgage could be a good way to save money on interest and pay off your mortgage faster.

However, if you are struggling to make ends meet or if you are concerned about losing your ACA subsidy, then you may want to reconsider paying extra on your mortgage. You may want to focus on other ways to save money, such as reducing your spending or increasing your income.

Conclusion
Paying extra on your mortgage can have a small impact on your ACA subsidies. However, the decision of whether or not to pay extra on your mortgage is a personal one that depends on your financial situation and goals.