Bankers, builders and a representative of a realtors' association paraded before a State Senate committee today to complain that Maryland is being frozen out of the housing market by a law that limits interest rates on home mortgages to 10 percent.

The situation has become so bad, according to testimony before the Senate Economic Affairs Committee, that a young, recently married couple considered a good credit risk would be unable to find a Maryland institution that would lend them the money to buy a $65,000 home.

A bill the committee is considering would eliminate the current 10 percent interest ceiling on residential first mortgages. Proponents of the bill say lending institutions are now discouraged from doing business with Maryland residents because they are able to charge 10 1/4 and 10 1/2 percent interest rates in Virginia and in the District of Columbia.

According to George L. Schnader Jr. of the Maryland Institute of Home Builders, 75 percent of the lending institutions in Maryland are refusing applications for loans. Those that are taking them are requiring 30 to 50 percent down payments, according to testimony, and are doing so mainly for citizens who have had prior dealings with the institutions.

"You always hear that this is a bankers' bill," said Sen. Laurence Levitan (D-Montgomery), chairman of the Budget and Taxation Committee. Levitan said "the only thing the ceiling does is take away the home buyers' choice," of buying a home.

Speakers at the hearing, ranging from government housing officials to representatives of lending institutions agreed that the current law should be changed. But some argued that instead of eliminating the ceiling on interest rates, it should be made flexible, permitting rates to go up or down in line with rates charged in the housing market.

Albert DeSalvo, executive director of the Citizens Planning and Housing Association, which represents more than 200 neighborhood groups in the Baltimore area, said: "our concerns are how to allow mortgage money to flow once again in Maryland while still affording protection to the consumer against unreasonably high rates. We feel that eliminating the ceiling could make the moderate income, unsophisticated homebuyer a prey to the few, but nevertheless always present, unscrupulous lenders."

But Milton Kettler of Kettler Brothers, the firm that built Montgomery Village in Montgomery County, said Maryland's current interest ceiling -- the so-called anti-usury law -- is already having an adverse effect on the state's economy.

He said that because of high interest rates and tight money, housing starts across the nation are likely to drop 20 percent from their 1977 level in 1979. Housing starts in Maryland, Kettler said, will drop 38.5 percent. That means that only 22,000 new units are likely to be built in 1979, 10,300 fewer than in 1978.

The bill eliminating the interest ceiling has a good chance of getting the economic affairs committee's approval, according to its chairman, Sen. Harry J. McGuirk (D-Baltimore).