The hard drive had S.M.A.R.T errors
I followed the instructions from iFixit on taking the iMac apart and managed to replace the hard drive.
The new hard drive was the same size and model from the same manufacturer that I got in Compusa.
The tools I got from iFixit really worked in the way described.
After replacing the hard drive the iMac starting having a loud noise due to high RPMs in the fan.
I got HDD Fan Control (http://www.hddfancontrol.com) and after installing it the noise disappeared.
Heavy-Duty Suction Cups (Pair)
TR8 Torx Security Screwdriver
TR10 Torx Security Screwdriver