"A casa está paga."
I thought 'paga' is present tense 'pays'.. why not the past form here ? is this wrong ?
yes, it is wrong. Paga is the third singular conjugation for the present tense, but also a PARTICIPLE verb, which takes masculine/feminine and singular/plural forms: paga, pagas, pago, pagos. But paga doesn't express past for the 3rd person. Then we say "ela pagou"
So is the correct translation for "The house is paid" is "A casa está pago"?
No. Participles have number and gender in Portuguese. Casa is feminine, so we say "a casa está paga"