In a fractional reserve system when banks lend out money, that money is created out of thin air by a accounting journal entry, and the money supply goes up by the amount of the loan & when the loan gets paid off, that money disappears back into thin air and the money supply goes back down which is often also described as "destroying the money"
As under normally amortized loan, out of monthly payments, some part goes towards interest & some towards principal repayment, so the question is does the money equivalent of principal repayment disappears into thin air every time the payment is made towards principal of the loan, or does it only disappears at end of the loan term all at once when the loan has been repaid in full?
If the money gets destroyed or rather disappears from the money cycle every time the principal is repaid from the monthly payments, then does it means that the banks are only left with the interest parts & nothing out of the principal portion on their books?
Also how does the money gets depleted from the money cycle and disappears into thin air in the case of "interest only loans", where during the term of the loan only interest payments are being paid by the borrower & the principal is repaid all at once at the end of the term of loan in form of a single one time payment.
So is it that in such interest only loans because the principal gets repaid all at once at the end of the loan term so at that time immediately it gets depleted from the money cycle all at once & disappears into the thin air?
And most importantly: if all of the money equivalent of the principal amount of loans disappears then how does the banks end up recovering the actual amount loaned by them to the others & not just the interest on that loan?