DNA polymerase mu (Polmu) is a family X member implicated in DNA repair, with template-directed and terminal transferase (template-independent) activities. It has been proposed that the terminal transferase activity of Polmu can be specifically required during non-homologous end joining (NHEJ) to create or increase complementarity of DNA ends. By site-directed mutagenesis in human Polmu, we have identified a specific DNA ligand residue (Arg(387)) that is responsible for its limited terminal transferase activity compared to that of human TdT, its closest homologue (42% amino acid identity). Polmu mutant R387K (mimicking TdT) displayed a large increase in terminal transferase activity, but a weakened interaction with ssDNA. That paradox can be explained by the regulatory role of Arg(387) in the translocation of the primer from a non-productive E:DNA complex to a productive E:DNA:dNTP complex in the absence of a templating base, which is probably the rate limiting step during template-independent synthesis. Further, we show that the Polmu switch from terminal transferase to templated insertions in NHEJ reactions is triggered by recognition of a 5'-P at a second DNA end, whose 3'-protrusion could provide a templating base to facilitate such a special "pre-catalytic translocation step." These studies shed light on the mechanism by which a rate-limited terminal transferase activity in Polmu could regulate the balance between accuracy and necessary efficiency, providing some variability during NHEJ.