The Federal Home Loan Bank Board is recommending that federally chartered savings and loan associations be allowed to offer alternative mortgage instruments - on the condition that consumers' freedom of choice be adequately protected.

Currently state-chartered thrift institutions, mainly in California and New England, are offering alternatives to conventional mortgages, although some big national banks like the Bank of America also do.

Donald M. Kaplan, chief economist of the bank board, told the Senate Banking Committee his agency was waiting for a "green light" from Congress to go ahead on what he considered a more consumer-oriented proposal than that put forth by the FHLBB in 1975. (FHLBB has the power to make the change itself, but has deferred to Congress' wishes thus far.)

Basically, the new proposal, put forth in a preliminary staff report, means that any thrift institution offering alternative mortgage instruments must offer conventional mortgages as well. In other words any customer who qualifies for a variable-rate mortgage but who wishes a fixed-rate mortgage would be able to get the conventional loan.

A conventional mortgage carriers the same interest rate and monthly payment throughout the life of the loan, often 30 years.

Under a variable-rate mortgage, the interest rate and the monthly payments can increase (or decrease) within certain limits in relation the interest rate the institution pays to borrow or some other money index.

Monthly amounts on a graduated-payment mortgage start lower than on a fixed or varied-rate mortgage but increase over the years on a predetermined schedule. The borrower pays back a larger amount on a graduated-payment mortgage than on a fixed-or variable-rate plan.

Because variable- and graduated-payment mortgages are more profitable for the lender, Congress is also concerned that lenders would oblige borrowers to accept them. The rate for variable mortgages is often a quarter point below that for fixed-rate ones. Consumer studies have indicated that 80 per cent of those questioned prefer fixed-rate mortgages, but that those questioned also want the freedom to choose.

Kaplan said the FHLBB was opposed to the government setting interest rates or differentials between fixed-rate mortgages and variables, or limiting the percentage of assets an institution can have in alternative instruments. Market forces and competition should be the governing factors, he said.

In a study of home affordability, the bank board found that inability to meet monthly payments disqualifies more applicants than inability to come up with a downpayment. The finding appears to mean that graduated-payment mortgages would be attractive for many borrowers, the board said.

Yet some critics maintain that alternative mortgage instruments are anti-consumer, and argue that they discriminate against households with low incomes. Kaplan refutes this by citing studies of mortgage transactions. About 75 per cent of graduated payment borrowers were first-time homebuyers; they were younger and had lower incomes than those taking fixed-rate mortgages.

Kaplan said the graduated-payment mortgages have the potential of increasing homeownership by up to 5 per cent and could enable up to 11 per cent of the people under 35 who currently rent to buy homes.

Senate Banking Chairman William Proxmire (D-Wis.) said at the hearings that he is concerned that the graduated payment plan, openly aimed at upwardly mobile borrowers, would take away funds needed more by those on fixed incomes or those with only modest expectations for the future.

Under the safeguards proposed by the bank board, Kaplan calculated that over a six-year period the most a variable monthly payment could rise would be 22 per cent. Payments on a $30,000 mortgage for 30 years at 9 per cent would go from $241 to $294.

On the other hand, a graduated-payment mortgage, where the increases are planned over a five-year period, would rise almost 44 per cent, from $182 a month to $262.