When the Timer's event fires, use the ScreenToClient and GetCursorPos API functions to see if the mouse is still over the control. If the mouse has moved off of the control, unhighlight it and disable the Timer.

My book Custom Controls Library includes the implementation for 101 custom controls (although not this one).

Private Sub Label1_MouseMove(Button As Integer, Shift As _
    Integer, x As Single, y As Single)
    If highlighted Then Exit Sub
    highlighted = True
    Label1.ForeColor = vbRed
    Timer1.Enabled = True
End Sub

Private Sub Timer1_Timer()
Dim pt As POINTAPI

    ' See where the cursor is.
    GetCursorPos pt
    
    ' Translate into window coordinates.
    ScreenToClient hwnd, pt

    ' See if we're still within the control.
    If pt.x < Label1.Left Or pt.y < Label1.Top Or _
       pt.x > Label1.Left + Label1.Width Or _
       pt.y > Label1.Top + Label1.Height _
    Then
        highlighted = False
        Label1.ForeColor = vbBlack
        Timer1.Enabled = False
    End If
End Sub