What you describe is what a loan is. The collateralization scheme seems off, though.
You can't, generally, just get things for free. If you want to buy a house, which is for sale at the price of one Bitcoin, there isn't generally a way for you to get the house without spending one Bitcoin. It doesn't matter if you spread the transaction out over time, as with a loan repayment schedule, or if you transfer the entire coin at the time of purchase.
This is exactly the same as buying a house using dollars (or any other currency). If it costs $250,000 there is no way for you to get the house without expending $250,000.
Where this looks a bit odd is when you consider Bitcoins to be the unit of exchange (you are buying something priced in Bitcoin), the thing being loaned, and also the collateral for the loan. The typical collateralization for something like a loan to buy a house is the house itself-- if you default on the loan, the lender takes the house and sells it to recoup the loss on the loan. So in the example in the question you would retain your Bitcoins, but would lose the house (valued at ~1 BTC) to satisfy the loan.
If you don't default, then you have to repay what you borrowed plus any interest charged. It doesn't matter where you get the repayment money. It is exactly the same if you earn another BTC through a day job or if you rent out the house and thereby earn 1 BTC which you use to pay the loan back. Most people don't have "genius ideas" that drop windfalls of cash on them. They work and, over time, pay off the loan balance piece by piece.
Is there something I'm fundamentally missing here?
Yes. You can't, generally, buy something without spending money (or exchanging something of similar value). I find people often become confused when talking about cryptocurrencies because they start to conflate their asset-like qualities with their currency-like qualities in ways that sometimes don't make sense. It would be an odd arrangement to borrow $100,000 in cash by putting up $100,000 in cash as collateral. That a person would prefer to get the $100,000 loan and never pay it back is understandable, but it's not realistic. Why would anyone, ever, take the other side of that deal?
What is the point of taking a loan to "not spend your Bitcoin" when you have to pay it back anyway?
This is nonsense if you consider BTC to be currency (which I do not). It is less unreasonable if you think of cryptocurrencies as assets. If you have 1 BTC which is worth $100,000 (a made-up number), and expect it to increase in dollar value (for example, you think it will be worth $110,000 in one year's time) then you might prefer to hold the coin than to spend it now: if you buy a house by selling or transferring the coin, you gain the house (valued at $100,000 or 1 BTC at the time of purchase) but lose the coin, and so you "miss out" on the extra $10,000 the coin is worth in one year.
So you might put up the coin as collateral for a loan of dollars, and then pay back the loaned dollars over time. Then you don't spend the coin and get to capture any increases in the coin's dollar value. If things work out well, you end up ahead-- the coin is worth more than what you spent to buy the house: you have 1 BTC (now worth $110,000) and one house (worth $100,000). Even after paying back the loan (with $100,000 cash or with ten elevenths of a BTC when one whole coin is worth $110,000), you own assets worth $10,000 more than what you started with.
But using "your" coin as collateral for a loan of a different coin, which you borrow and then spend, doesn't change the fact that you've spent a coin. And you owe your lender for the coin you borrowed. No one has donated a coin to you, nor given you a free house worth one coin.
Is the idea that the borrower assumes that they will make a lot of money somehow, unrelated to the loan, and be able to pay it back until it expires?
Yes. There are other types of loans, like business loans, in which the loaned money is expected to directly contribute to allowing the business to generate enough revenue to at least pay back the loan (plus interest). But the expectation that comes with loans is generally that they will be repaid, some way or other.
Is it really that "simple"?
Yes, and you don't need the quotes around "simple". Loans aren't free money for the borrower. In every case I've seen where people try not to "spend Bitcoins" they are expecting their Bitcoins to increase in value (in terms of some specific currency) and so don't want to expend those coins in exchange for things which they expect will not appreciate in value (also in terms of some specific currency) as much as they expect the coins to.