Yes, a borrower who spends their principle essentially goes short on bitcoin. They must hope the price of bitcoin doesn't rise so high during the loan's term that they are unable to pay it off at the end of the term. Conversely, the lender essentially goes long on bitcoin.

Which is interesting, it implies and demonstrates that you can execute long and short contracts directly on bitcoin without touching any other currency. Timelocks are very powerful tools.

I greatly appreciate your thoughts on this and your feedback, thank you

I am sorry for your loss. At least it sounds like you learned something.