I am curious as to how to proceed. I have a consumer purchase loan to purchase a new dwelling and also secured by the current dwelling, but this loan will payoff (refinance) the current dwelling into this loan as well. 90% of the loan proceeds will be used to purchase the new home. The rest of the money is to payoff the current home. Can this loan be treated as a purchase with no rescission or must I give rescission on the 10% of the funds for the home being paid off.

IMO - there is no primary purpose test. The reg states, " a credit transaction in which A security interest is or will be retained or acquired in a consumer's principal dwelling". Your transaction is secured by the principal dwelling, rescission applies.

So can the funds being used to purchase the new home be disbursed at closing? Or must I wait the three business days to disburse these as well?

4. Special rule for principal dwelling. Notwithstanding the general rule that consumers may have only one principal dwelling, when the consumer is acquiring or constructing a new principal dwelling, any loan subject to Regulation Z and secured by the equity in the consumer's current principal dwelling (for example, a bridge loan) is subject to the right of rescission regardless of the purpose of that loan. For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a construction loan to finance B and secured by A is subject to the right of rescission. A loan secured by both A and B is, likewise, rescindable.

In such a transaction, the rescission applies to the entire loan, and none of the proceeds should be disbursed until after the rescission period has ended and the lender ensures the consumer has not rescinded.