The D.C. City Council began preliminary work yesterday on a bill that would raise the city's interest ceiling on most loans to 21 percent a year and allow second mortgages with rates as high as 24 percent.

The measure, sponsored by Councilman John A. Wilson, also would lift the District's prohibition on so-called balloon mortgages to homeowners. These loans, which require relatively small payments at first but then "balloon" in one very large final payment, are now available only to homeowners who are financing the sale of their houses or to persons who are borrowing for business purposes.

Passage of the measure appears unlikely in this council session, sources said, but Wilson is expected to reintroduce the bill after the new council convenes next year.

The City Council has been under growing pressure from both the banking industry and would-be borrowers who have found themselves unable to obtain loans under the city's current usury limits.

Last year, the council lifted the ceiling on installment loans and car loans to 21 percent, but the lid on many other forms of credit, particularly in the mortgage field, has remained at 15 percent.

At a hearing yesterday of the council's Finance and Revenue Committee, where the measure is pending, the city's Office of Consumer Protection, representatives of several consumer groups and of the lending industry all agreed that a higher ceiling is needed to get dollars flowing into the city again.

All sides expressed reservations about the Wilson bill, however.

While applauding the bill's "obvious good intentions," acting director E. Veronica Pace of the Consumer Protection Office said "further consumer protections are needed."

She pointed particularly to the balloon loan provisions. "We have consistently opposed this practice in consumer transactions because at the time of maturity, the borrower is often unable to repay the principal and cannot readily find a new way to refinance. . . .Unless the consumer can refinance his loan, he faces foreclosure.

"Consequently, these are the most risky loans for borrowers, and we feel they should be prohibited in consumer transactions," she said.

Debbie Goldberg of the Metropolitan Washington Planning and Housing Association expressed concern about "protecting the interests of low- and moderate-income and minority home buyers," and about "regulation for lenders that are not under the ongoing supervision of state or federal banking regulatory agencies. . . ." Unregulated lenders are often the low-income person's only source of credit, "and some of these lenders have been known to prey upon unwitting borrowers. . . ."

Representatives of lenders generally preferred a bill that would eliminate usury ceilings.

John W. Stadtler of National Permanent Federal Savings and Loan, testifying for the Metropolitan Washington Savings and Loan League, urged the committee to drop the ceiling because "no one can predict with certainty what interest rate will be required in the future" to generate loans.