Formula is based on information from Jacky Mallet and here paper.
"Verðtrygg 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."
The calculation of the indexed linked loans in this project can be found by clicking the link below :