Verðtryggð Lán, or indexed linked loans, are a financial instrument widely used in Iceland for personal and commercial loans. They are calculated using an annuity based formula which applies the current inflation rate, as measured by the Consumer Price Index (CPI), to the outstanding principal of the loan, so that the principal of the loan typically increases with inflation over time. Interest payments calculated using the formula are typically less than the amount necessary to repay the increase in principal for inflation rates above ~2.5%, causing the loans to negatively amortize.
This repository contains the material used to prepare the paper:
Jacky Mallett
Author: Jacky Mallett
Jón Þór Sturlson (Formula for calculation)
Einar Jón Einarsson (Excel Spreadsheet)