Well, my problem with that idea with him possessing Jin is, if Terumi DID possess Jin, then Ragna wouldn't know anything about Terumi. All Ragna would have seen is Jin killing everyone.
I think in that scene, it implies that Terumi shows up there, physically. At first Ragna mentions Jin, because he hears him. He can't SEE Jin through the smoke, but he assumes the clouded figure is him. Then the game says "a man" emerges, and Jin and Ragna are still kids then.
It makes sense; when Terumi is laughing at Ragna, Ragna is still telling Jin to run away and take Saya with him. It doesn't seem to have registered with him that Jin was with Terumi, so Jin must have just been standing there watching it happen to Ragna while Terumi was doing everything. That's why Ragna's all confused when Jin starts saying things that sound like he's against Ragna; Ragna's like "what are you talking about?" since Jin hadn't done anything to make Ragna think he was hostile.
So I think he actually showed up, cut off Ragna's arm, then hauled Jin off with him. That makes me wonder what Ragna is mad at Jin for though... and Jin still talks about the incident as if he was the one who did it.
The picture of the Six Heroes kind of looks like the Terumi we see at the end of the game... so it feels like he still had the Hazama (his real) body.