I was charged a late fee on the whole mortgage amount for an oversight in the increase payment (due to escrow increase). I underpaid by $50, and the bank wants to charge me an additional $80 fee; which is 4% of the total payment, but over 100% more of what was owed. Can they do legally do this?
Yes, they can. In fact, if you failed to pay the $50 underpayment by the end of the month due, they can also report a 30 day late payment on your credit (which would be far more damaging than a $80 late fee). Just had that happen to a client, and it dropped his credit scores by 80 points. If you haven't paid the late fee yet, do so immediately. Know it stinks to get hit with that big of a cost for a small underpayment, but late fees are based on a % of the initial payment due, not on an underpayment amount. Credit card companies use same principle. They're going to charge you the same late fee whether you miss the entire payment or pay all but $1 of a payment due.