Spin-polarized density functional calculations, magnetization, and neutron diffraction (ND) measurements are carried out to investigate the magnetic exchange interactions and strong correlation effects in Yb substituted inverse spinel nickel ferrite. In the pristine form, the compound is found to be a mixed insulator under the Zaanen-Sawatzky-Allen classification scheme as it features both charge transfer and Mott insulator mechanisms. Estimation of magnetic exchange couplings reveals that both octahedral-octahedral and octahedral-tetrahedral spin-spin interactions are antiferromagnetic. This is typical of a spin-frustrated triangular lattice with one of the vertices occupied by tetrahedral spins and the remaining two occupied by octahedral spins. However, since the octahedral-tetrahedral interaction is dominant, it leads to a forced parallel alignment of the spins at the octahedral site which is in agreement with the results of ND measurements. The substituent Yb is found to be settled in +3 charge state, as confirmed from the x-ray photoelectron spectroscopy measurements, to behave like a spin-half-impurity carried by the localized fz(x2−y2) orbital. The impurity f spin significantly weakens the antiferromagnetic coupling with the spins at the tetrahedral site, which explains the experimental observation of a decrease in Curie temperature with Yb substitution.