Runaway interest rates have created "grave obstacles" for business, government and consumers in Maryland, and the situation is "approaching a crisis," Sen. Paul Sarbanes (D-Md.) said yesterday.

Sarbanes said high interest rates have hit small businesses in the state hardest, although he added that the situation is particularly critical in the home-building industry.

"The damage thus far is serious, and if conditions don't improve soon, it will be irreparable," Sarbanes said as he began hearings on the matter yesterday in Rockville.

Sarbanes is conducting a series of six hearings in the state to assess the economic impact of high interest rates, as part of a national assessment by the Joint Economic Committee of Congress.

Both the full committee, of which Sarbanes is a member, and a subcommittee will hold additional hearings in the fall when Federal Reserve Chairman Paul A. Volcker is expected to be questioned on the Fed's monetary policies and their effect on interest rates.

The purpose of the hearings is to "document and assess the damage which high interest rates have caused" and to consider methods designed to reverse the trend, Sarbanes explained.

Less federal regulation of the economy would accomplish that, suggested Robert L. Mitchell, president of the Suburban Maryland Home Builders Association, in testimony yesterday.

Mitchell said the real effect of high interest rates on the builder is uncertainty. "Our situation is aggravated by the uncertainty in the financial institutions industry," he said.

Mitchell and other builders insisted that high interest rates, more than the higher cost of new homes, have discouraged prospective home buyers. As a result, even though there is demand in Montgomery County for about 7,500 new housing units a year, builders will complete only 3,500 in 1981, he said.

"The 17 to 18 percent interest is just simply choking people," testified Dale Ross, representing the Montgomery County Board of Realtors. "They can't afford to carry a house."

At the same time, real estate brokers in the county are "going out of business right and left," Ross said.

He blamed high interest rates for sales declines of between 37 percent and 50 percent among several real estate firms in Montgomery County.

Among new car dealers, higher interest rates have become the expense leader, said Herb Gordon, owner of a dealership operating under the same name in Silver Spring.

Montgomery County, which is reputed to be "recession-proof," has had several dealership failures, said Gordon. But this "may be just the tip of the iceberg. There are many dealers who are hanging on, hoping for relief," he warned.

In a statement of critical of current Fed policy, Gordon said high interest rates are inflationary. "We are not sure these monetary policies are working, and we feel that the interest-rate cure may be killing the patient," he declared.

At hearings conducted earlier this week on Maryland's Eastern Shore, farmers complained of having to repay loans with interest rates two to three points above prime -- now at 20 1/2 percent. The prime is the rate which banks charge for loans to their best business customers.

In testimony yesterday, Leon Enfield, president of the Maryland Farm Bureau, said interest on loans for new equipment is now in excess of 18 percent. Moreover, Enfield said that while interest rates are skyrocketing, farm prices are falling.

As a result, farmers in the state envision more bankruptcies and more foreclosures, he said.

High interest rates also have taken their toll on counties and municipalities, testimony showed. In fact, Montgomery County has had to curtail its borrowing because of higher rates, County Executive Charles W. Gilchrist testified yesterday.

"We are squeezing our programs to increase productivity and to defer capital expenditures," said Gilchrist.